Bbar - 301 - SLM Sem 2 Business Economic

DR.
BABASAHEB AMBEDKAR
OPEN UNIVERSITY
BBA
BACHELOR OF BUSINESS ADMINISTRATION
BBAR-301
Business Environment
BUSINESS ENVIRONMENT
ISBN : 978-81-947108-7-5
Editorial Panel
Author
Dr. Kuldeep. D. Ahuja
Assistant Professor,
R. C. College of Commerce, Delhi Chakla, Ahmedabad
Editor
Dr. Dhruv Brahmbhatt
Assistant Professor,
Faculty of Management, GLS University, Ahmedabad.
Language Editor
Dr. Vasant K. Joshi
Associate Professor,
G. B.Shah Commerce College, Ahmedabad.
Edition : 2021
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ROLE OF SELF INSTRUCTIONAL MATERIAL IN DISTANCE
LEARNING
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pletely equipped with everything that the syllabus prescribes.
To ensure effective instruction, a number of instructional design ideas are
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tice of new attitudes may then be introduced.
Teaching and learning at a distance eliminates interactive communication
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face method of teaching. This is particularly so with the exclusive use of
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tional, but mandatory.
Our team of successful writers and authors has tried to reduce this.
Divide and to bring this Self Instructional Material as the best teaching and
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Distance education teaching repertoire involves extensive use of self- instruc-
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achieve certain pre-determined learning outcomes, namely goals and objec-
tives that are contained in an instructional plan. Since the teaching process is
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measure students’ performance (continuous assessment)
PREFACE
We have put in lots of hard work to make this book as user-friendly as pos-
sible, but we have not sacrificed quality. Experts were involved in preparing
the materials. However, concepts are explained in easy language for you. We
have included many tables and examples for easy understanding
We sincerely hope this book will help you in every way you expect. All the
best for your studies from our team!
Contents
BLOCK 1: INTRODUCTION TO INDIAN BUSINESS ENVIRONMENT
UNIT 1 BASICS OF INDIAN BUSINESS ENVIRONMENT
Indian Business Environment concept and importance – Need of En-
vironmental studies for Business.
UNIT 2 TYPES OF BUSINESS ENVIRONMENT
Types of Environment – Natural, Economic, Political, Social, Tech-
nical, Cultural, Educational, Legal, Cross-cultures.
UNIT 3 PROBLEMS OF GROWTH
Unemployment, Poverty, Regional imbalance, Social injustice, in-
flation, Parallel Economy, Industries sickness, Environmental prob-
lems affecting growth of Business.
BLOCK 2: NATURAL ENVIRONMENT RESOURCES AND ENVIRON-
MENTAL ISSUE
UNIT 1 ENVIRONMENTAL FACTORS AFFECTING BUSINESS
a) Physical – Topography, Climate, Minerals, Water resources.
b) Cultural – infrastructure, Technology, Tradition, Political set up,
Social Set-up, Educational Set-up.
UNIT 2 NATURAL RESOURCES AND SUSTAINABILITY
Renewable and Nonrenewable resources, Limitations of non- renew-
able resources – need of renewable resources, strategy for conserva-
tion of natural resources.
UNIT 3 ENVIRONMENTAL ISSUE RELATED TO BUSINESS
Global warming and Kyoto Protocol, Oil Crisis and its impact on
business, Problems related to water resources management, Indus-
tries and Pollution – Air, Water, Noise.
BLOCK 3: INDIAN ECONOMIC ENVIRONMENT AND GLOBAL DY-
NAMICS.
UNIT 1 Indian economic environment Part I
Planning in India, Agriculture Development in India, Industrial policy
in India, Disinvestment and privatization in India.
UNIT 2 Indian economic environment Part II
Competition policy, Price and distribution control, Demographic fea-
tures, Unemployment and Inequality, Patents and trademarks, Labor
legislation India.
UNIT 3 Indian monetary and fiscal policy with exchange rate.
Money market and capital market.
Foreign exchange regulation.
Monetary and fiscal policy.
UNIT 4 India and World.
Foreign investments, Multinational corporations, WTO and India.
BLOCK 4: SOCIETY AND INDUSTRY - INDIAN AND GLOBAL
TRENDS WITH CASES.
Unit 1 Social Responsibility of Business
Social Audit.
Unit 2 Consumerism
Consumer’s Rights.
Unit 3 Industrial Sickness
Trade Unions.
Unit 4 Worker’s participation in management.
Industrial Relations and Disputes.
Dr. Babasaheb BBAR-301
Ambedkar
OpenUniversity
BLOCK-1 INTRODUCTION TO INDIAN BUSINESS

ENVIRONMENT
UNIT 1
BASICS OF INDIAN BUSINESS ENVIRONMENT
UNIT 2
TYPES OF BUSINESS ENVIRONMENT
UNIT 3
PROBLEMS OF GROWTH
BLOCK 1 : INTRODUCTION TO INDIAN BUSINESS ENVIRON-
MENT
Block Introduction
India becomes liberalized along with exclamatory foreign exchange commands.
Rupee continues adaptably adjustable on current accounts. For FDI- benefits
accomplished, dividends as well as conducts away of the retail of expendi-
tures are completely repatriable. It is analysed that when changes occurs in
government polices then business will change as per changes and according
to the recent policies. The output of modernisation made the things to be-
come obsolete every now and then. The origin of new technology made the
old technology to modify or not to be applied.
In this block you will be given an idea about business and its related factors.
The knowledge related to Indian business scenarios and resulting needs and
objects are highlighted. You will be given with an idea about certain business
factors which governs the society or country such as economic factors, social
factors, legal factors, demographic factors, technical factors. The detailed
knowledge about types of business environment that affects the business will
also be explained.
Unemployment serves as an important issue in business growth as it locks
people in poverty by generating economic growth in future since people loses
skills and become unemployable. It is seen that variation with uneven amount
of wealth is owned by small marginal of population by affecting social stabil-
ity.
In this block you will be given an idea about poverty and how poverty will
affect the growth of economy. The knowledge related to regional imbalance
in economic development and rapid industrialization on social injustices is
highlighted. You will be given an idea about inflation on fixed income groups
and parallel economy concepts are well shown. The detailed knowledge about
environmental problems affecting growth of Business will also explain.
After completing this block, you will come across with the knowledge of
how business works and what are the factors associated with it. The block
will make you aware about certain type of business environment factors which
can use as and when the concept for future needs pertains.
Block Objective
After learning this block, you will be able to understand:
 The Concept of business.
 About importance of business environment.
 Objectives of environmental analysis.
 About Environmental Regulations.
 The Need of Compliance Requirements.
 About Environmental Contaminants.
 About macroeconomic elements.
 Factors affecting political business environment.
 Understanding of technological factors.
 About Organizational Law.
 The Concept of Ethnocentrism.
 The reasons of Poverty for economic growth.
 Concept of Regional imbalance on economic development.
 Idea about rapid industrialization on Social injustices.
 Detailed about inflation.
 Knowledge related to parallel economy.
 Features about environmental problems affecting growth of business
Block Structure
Unit 1: Basics of Indian Business Environment
Unit 2: Types of Business Environment
Unit 3: Problems of Growth
1
Unit
BASICS OF INDIAN BUSINESS ENVIRONMENT
1
: UNIT STRUCTURE :
1.0 Learning Objectives
1.1 Introduction
1.2 Concept of Indian Business Environment
1.3 Importance of Indian Business Environment
1.4 Need of Environmental Studies for Business
1.5 Let Us Sum Up
1.6 Answers for Check Your Progress
1.7 Glossary
1.8 Assignment
1.9 Activities
1.10 Case Study
1.11 Further Readings
After learning this unit, you will be able to understand:
 The business.
 The concept Indian business.
 Objectives of business environment.
 Understanding of environmental studies.
1.1 Introduction
India with its consistent succession and sufficient strongly expert manpower
delivers exceptional prospects for investments. India is the most heavily popu-
lated democracy and lies 10th among the most significant economies across
the globe. It is among the 4th widespread economy as compared to countries
across the world in terms of buying power equality. In India, there seems to
be a federal system of Government having varied discrimination of resources
and power that occurs among Central Government and State Governments.
India carries open-minded, attractive and trade friendly investment opportu-
nities that carry a of varied environmental prospective. India carries heavy
and encouraged foreign investment that works with any level. India pos-
sesses foremost broad-minded as well as crystal-clear policies on foreign
direct investment (FDI) among major economies around the world. 100%
FDI endures admissible below the self-regulating convergence in complete
sectors/activities apart from minimal regions, which constrains cardinal ap-
proval of the Government. Underneath self-regulating, investors are con-
straining to individual recommendation through Reserve Bank of India in 30
days of date of endowment of internal remittances.
1
INTRODUCTION TO India becomes liberalized along with exclamatory foreign exchange commands.
INDIAN BUSINESS Rupee continues adaptably adjustable on current accounts. For FDI- benefits
ENVIRONMENT accomplished, dividends as well as conducts away of the retail of expendi-
tures are completely repatriable.
India combines an awesome socio-economic brand along with 55% of its
occupant lives under the age of 25. It is found that excessive economic ex-
pansion as well as heightening per capita funds achieved higher growth in
national as well as international market that is the basis of growth engine
which in turn will result in great Indian marketplace.
Government of India atmospherically exaggerates on the establishment con-
nectedly infrastructure in highways, ports, railways, airports, power, telecom,
etc. Government is continuously observing for household as well as extra-
terrestrial secret expenditure, for infrastructure divisional establishment.
1.2 Concept of Indian Business Environment
It is found that every business establishment works in its own identified envi-
ronment. It is the atmosphere which influences the businesses that gets influ-
enced by it. It is seen that without interaction, no business can work and
reach to success. By business we mean that the interaction that exist in terms
of economic expansion, growth and change. In broader aspects, business is
concerned with activities that carries sale, purchase, manufacture, process-
ing, and marketing of goods and services. It is studied that the idea of busi-
ness is concerned with the related objectives of business in terms of profit-
ability, productivity, growth, efficiency, stability, survival, strength, competi-
tion, struggle, customer needs and satisfaction, financial matters, goods qual-
ity etc. It is seen that the main view of business is to attract and develop
customers who will be the final authority and decision maker of particular
product or service. It is presumed that inputs in terms of human, physical,
financial and several other resources are basically obtained from the environ-
ment that will normally get converted to certain resources by various pro-
cesses in terms of outputs of products.
Broadly speaking business is accompanied to all-inclusive of all individuals
or institutions that conveys consumers, competitors, suppliers, media along
with additional drives comparable as economic, social, political, constitu-
tional as well as technological which are inhabiting outward the ambit as well
as administer of business endeavour furthermore that which conserve com-
mand its operation.
Check your progress 1
1. Which is not an objective of business?
a. profitability b. sharing
c. productivity d. growth
2. Who is the main authority in the market and ultimate authority to ac-
cept or decline the products.
a. Producer b. Supplier
c. Consumer d. management
3. By business we mean ___________.
a. Economic reforms b. Economic Expansion
c. Economic boom d. Economic Adaptability
2
1.3 Importance of Indian Business Environment BASICS OF INDIAN
BUSINESS
An assertion of business environment supports to determine potency, feeble-
ENVIRONMENT
ness, chances & warnings. Examination is very compulsory for the survival
as well as development of the business endeavour. The consequence of busi-
ness surroundings is to determine:
Strength: The assertion of the inner surroundings benefits to determine po-
tency of the firm. For simulation, if the business grasps excellent exclusive
directives in regard of furthering, hand over, training, etc. then it conserve
exhibits vitality of the consortium in honour of exclusive policies. This stabil-
ity can be determined through the job satisfaction and performance of the
employees.
Weakness: The argument of the internal neighborhood exhibits not sole
strengths moreover along with the feebleness of the enterprise. An enterprise
may be authoritative in assured domains; whereas it may be impotent in nu-
merous other regions. The enterprise should determine charge impotence on
account of as to amend them as precipitous as conceivable.
Opportunities: An interpolation relevantly the outer vicinity benefits the
enterprise firm to determine the fortuities in the market. The business estab-
lishment should develop every feasible operation to extort the fortunes as
and when they approach.
Threats: Business may be predominating to warnings from combatants and
others. Hence surrounding examination benefits to determine risks from the
neighbourhood breakthrough of threats at a foregoing date is consistently
favourable to the business as it benefits to compose the same.
Business Opportunities: In surroundings, there exists new opportunities
that will lead to expansion and further growth of business. It is found that
study of environment is required to find and locate for such opportunities
fully.
Business Enterprise Alert: The use of environment study will keep busi-
ness unit alert in vision and approach. Without change, the business activities
become dull and carry no life. It is found the prospects of business are under-
stood by way of such business study of particular environment. It makes an
establishment to handle related problems with confidence and confidence.
Business Flexible and Dynamic: In order to keep flexibility in business the
use of study of business environment is essential with changes that force the
environment. It will allow development of business organization to establish.
Problems and Prospects: With the study of business environment, the user
or customer will be able to understand the type of future problems and their
prospects of business well in advance. It makes the business organizations to
handle related problems strongly in order to handle favourable situation.
Acceptability: The study of business environment allows a businessman to
expand its business and make him to work in social network. By this, the
business organizations results in positive acceptance of maintaining ecologi-
cal setup by learning various social business environment.
3
INTRODUCTION TO Utilization of Resources: The study of business environment, it is clear that
INDIAN BUSINESS the optimum use of resources can be made available by studying economic
ENVIRONMENT and technological environment. With the study of such environment helps the
organization to achieve maximum benefit of policies, concessions and devel-
opments.
1. What is the role of acceptability in business environment?
a. It makes an establishment to handle related problems
b. It makes the business organizations to handle related problems strongly
c. It allows a businessman to expand its business and made him to work
in social network
d. All of above
1. The strength of company is ……
a. More manpower.
b. More financial power.
c. Job satisfaction among the employees.
d. All of above
1 The tension between Iran and US affects the Indian business environ-
ment.
a. Because it affects the input India uses.
b. Because Indian exports to Iran are getting affected.
c. These are the external factors and India has little control over them.
d. All of above
1.4 Need of Environmental studies for Business
In general, business will work and flourish if the environment is clear and
supportive. The inputs in terms of human, physical, financial resources are
drawn from environment. It is the working of business which will converts
such type of resources with several processes in terms of outputs of products
and services. There occur three basic objectives of environmental analysis in
terms of business such as:
 To examine and predict current and potential changes that take places
in an environment.
 Should provide inputs in order to prepare strategic decisions.
 To carry out and foster strategic thinking in an organization.
Apart from these there are problems that make an environmental to influence
and to analyse based on complexity, diversity, uncertainty and limitations.
There are certain framework which made the environmental to understand is:
 Initial view about uncertainty.
4
 Auditing of environmental influences to find important factors that BASICS OF INDIAN
will affect the organization’s development or performance. BUSINESS
ENVIRONMENT
 To stress on explicit consideration of current environment of an orga-
nization.
Normally today, business needs to be environmentally sound and clean.
There are two basic opinions that take care about the environment:
Introduction to Indian Business Environment
1. Keeping the environment clean is very expensive so to keep the prices
low as desired by the consumers.
 As protecting of environment results in an expense and reduce profits.
 As there will be more prices, it means increased costs.
 Establishment should be competitive as compared to those who are
not environmentally friendly.
2. Consumers need to have businesses with social responsibility.
 With this clean and efficient machinery will benefit the business in longer
run.
 With the effect of environmental issues, social responsibility on busi-
ness will increase.
 With use of scarce resources, it will be nothing for future generations
and raise prices.
1. What among the following is not an objective of environmental analy-
sis?
a. To examine the present change.
b. To work for earlier alterations that appear in an environment.
c. To provide inputs to prepare strategic decisions.
d. To carry out strategic thinking in an organization.
1.5 Let Us Sum Up
In this unit we have learnt that India has open-minded, attractive and trade
friendly investment opportunities which worked out with varied environ-
mental perspective. With this, India has heavy and encouraged foreign in-
vestment that works with any level. It is seen that India combines an awe-
some socio-economic brand along with 55% of its occupant lives underling
the age of 25.
We can say that business is related to activities that carries sale, purchase,
manufacture, processing, and marketing of goods and services. An assertion
of business environment supports to determine potency, feebleness, chances
& warnings. Examination is very compulsory for the survival as well as de-
velopment of the business endeavor.
Generally, business will work and flourish if part of environment is clear and
5
INTRODUCTION TO supportive with inputs as human, physical, financial resources that originate
INDIAN BUSINESS from environment.
ENVIRONMENT
Answers: (1- b)
Answers: (1-c)
Answers: (1-c)
Answers: (1-d)
Answers: (1-b)
1.7 Glossary
1. Business Environment - These are the forces which will affect the
performance of an organisation outside its control.
2. Opportunities - It is a positive external trend which will help an
organisation by improving its performance.
3. Threats - These are environmental trends which lower the output per-
formance of an organisation.
1.8 Assignment
What do you mean by business? Write any two characteristics of it.
1.9 Activities
Discuss the business factors that will affect the environment?
1.10 Case Study
Business environment helps in finding of threats and early warning signals
Discuss.
1. [Palgrave Master Series] Roger Cartwright - Mastering the Globaliza-
tion of Business (2004, Macmillan Education UK)
2. Britton, Chris_ Thompson, Ed_ Worthington, Ian - The Business En-
vironment (2018, Pearson Education Canada)
3. Hickson, David J., and Derek Salman Pugh. Management Worldwide:
The Impact of Societal Culture on Organizations around the Globe.
New York: Penguin USA, 1996.
4. Hofstede, Geert. Cultures and Organizations: Software of the Mind.
London: McGraw-Hill, 1991.
5. Mead, Richard. International Management: Cross-Cultural Dimensions.
Cambridge, MA: Blackwell, 1998.
6
Unit
TYPES OF BUSINESS ENVIRONMENT
2
: UNIT STRUCTURE :
2.1 Introduction
2.2 Types of Environment - Natural Environment
2.3 Economic Environment
2.4 Political Environment
2.5 Social Environment
2.6 Technical Environment
2.7 Cultural Environment
2.8 Educational Environment
2.9 Legal Environment
2.10 Cross-cultures Environment
2.11 Let Us Sum Up
2.13 Glossary
2.14 Assignment
2.15 Activities
2.16 Case Study
 About Business Environment.
 About Cross culture environment.
 The Basic of Education role in business society.
 Factors of Technical Environment.
2.1 Introduction
It is seen that success of business is dependent upon adjusting to environ-
ment inside which it works. It is viewed that as when the changes in govern-
ment policies occur, business will also amend itself as per the changes and
required new policies. It is found that the result of modernisation, the things
will become obsolete day by day. With invent of every new technology, the
old technology is either modified or is of no use. All these aspects are exter-
nal factors that are beyond the control of the business. So business units will
tend to adapt themselves for such changes so as to work and succeed. With
this it is clear that the necessity of clear understanding of business environ-
ment concept is required.
7
INTRODUCTION TO Business environment concerns external forces, factors and institutions that
INDIAN BUSINESS are far away from control of business which may affect functioning of a busi-
ENVIRONMENT ness establishments. Such will include customers, competitors, suppliers,
Government, social, political, legal and technological factors. These factors
results in direct impact on business establishments. So it is collectively nar-
rated that business environment comprises total surroundings that have di-
rect or indirect effect on functioning and working of business. These are set
of external factors which could be:
 economic factors
 social factors
 legal factors
 demographic factors
 technical factors
Fig 2.1 External Factors

2.2 Types of Environment- Natural Environment
Establishment which are into industrial or manufacturing industry normally
will work as per required kinds of latest equipment, machinery and chemical
producing agents. In consequence, assignment day-to-day activities can imi-
tate an on-going intimidation to the undeceptive environment. To alleviate
the possibility of depredate to the surroundings, federal as well as state regu-
lations compel assignments approximate confident natural environmental
agencies in their overall exercises plans.
Environmental Regulations
Regulation of certain business activities tends to save certain government
agencies in terms of environment regulations. It is analysed that business
should ascertain the required standards which can be used in order to lower
any adverse effects which a company activities had on environment. So it is
visualised that natural environmental factors like clean water and clean air
will guide how companies should act on their daily working.
Permit Requirements
Companies embodied in campaigns that impact their surrounding environ-
8
ment definitely acquire to file for operating approves through a proximate, TYPES OF BUSINESS
state or federal government medium. Business authorize demands empower ENVIRONMENT
government instruments to arrange also maintain trend of business behaviours.
These authorizes assist contrasting approaches, several of which comprise
apportioning negligible standards for several air emissions, coercing assured
approaches for responding rubbish as well as dangerous constituents along
with composing how a company’s day-to-day activities cooperate with ap-
proaching water supplies. In consequence, natural environmental factors as-
certain the categories of behaviours a company can campaign in within a
demanding ground or domain.
Compliance Requirements
Natural environmental executors authorize assignment behaviours as benefi-
cially as its adeptness to develop or acquire on contemporary behaviours. In
consequence, companies need acquiesce with environmental regulations in
collective settings of a enterprise’ establishment. Companies concentrating
acquiring a building should assure the building adheres to environmental regu-
lations or threat disbursing corrections for disobedience. Building elevations
mandate additionally assemble regulatory constraints. Companies that em-
brace as inside of disobedience may hazard gripping their activities locked
down on a fixed basis. Consummately, natural environmental operatives au-
thorize a company’s overall charges in terms of assuring appliance as well as
approaches convene regulatory conditions.
Environmental Contaminants
Businesses that function with dangerous constituents on a accustomed ac-
tion acquire assured obligations when it approaches to assuring contami-
nants don’t measure or command the natural environment. The complete
Environmental acknowledgment, adjustment as well as default appear as-
sume business holders likely for conducts that adulterate girding air, soil or
water feeds. These law consistent exercises for contemporary business hold-
ers, who unknowingly acquire an adulterated location or appropriation ac-
tivity that collapses to encounter acquiescence standards. Completely, hold-
ers, either Palaeolithic along with contemporary, need blanket clear up costs
as well as the costs of curing a property to compelled environmental up-
rights.
1. Natural environmental factors affects:
a. business cost
b. business growth
c. business extensions
d. business operations
2.3 Economic Environment
The economic surroundings consists relevantly extraneous alternates in a
business’ establishment along with the broader moderation that can autho-
9
INTRODUCTION TO rize a business. You can separate the economic surroundings into the
INDIAN BUSINESS microeconomic environment, which commands business determination bring-
ENVIRONMENT ing about - like as autonomous behaviours of concerns as well as clients -
along with the macroeconomic surroundings, which influences an exhaustive
moderateness along with conclusive of its participants. Repeated economic
intermediaries behave as outward blockages on your business, which describes
that you embrace minimum, if several, command over and above them.
Macroeconomic authorizes are blunt economic alternates that either clearly
or incidentally authorize the complete moderateness along with comprehen-
sive supplementally its participants, along with your business. These alter-
nates encompass such things as:
 Interest rates
 Taxes
 Inflation
 Currency exchange rates
 Consumer discretionary income
 Saving rates
 Consumer confidence levels
 Unemployment rate
 Recession
 Depression
Microeconomic representatives authorize how your business determination
will make certain facts. Just like macroeconomic elements, such elements
also removes lower as compared to bulky in extent which does not compul-
sorily authorize for full complete moderateness as a whole. Microeconomic
alternates empower a business that will contain:
 Market size
 Demand
 Supply
 Competitors
 Suppliers
 Distribution chain, such as retailer stores
1. Which among the following is not a microeconomic factor?
a. demand
b. supplier
c. competitor
d. recession
2.4 Political Environment
There are repeated extraneous environmental alternates that can authorize
10
your enterprise. It endures conventional for managers to approximate each TYPES OF BUSINESS
coincidentally these alternates locally. The orientation exists habitually to ENVIRONMENT
accumulate favourable determinations for the firm’s proceed. Numerous con-
ventional alternatives are political, economic, communal as well as techno-
logical. Companies additionally examine environmental, legal, factual as well
as demographic alternates.
The political alternates authorizing business are habitual assigned a part of
criticalness. Numerous arrangements of government policy can influence
business. Comprehensive enterprises need to descend the law. Managers de-
mand determine how upcoming legislations conserve empower their
behaviours.
The political surroundings can impact business subcommittees in countless
manners. It could accompany a hazard alternate along with dominance to a
major setback. You should believe that the political alternates embrace the
competence to adjust sequences. It can additionally authorize government
instructions at immediate to federal grade. Companies should be formulating
to accord with the immediate as well as international consequences of poli-
tics. It is find that changes in terms of government policies will result in
political alternatives. It can be economic, legal or social that will combine
such factors.
Any variation in tax in terms of increase or decrease could result in an ex-
ample of political element. It is estimated that government might tends to
upgrade the tax range for certain companies which could be on lower side
for others. The decision will have a direct effect on your businesses. So it is
analysed that an up-to-date record along with certain political factors should
be endorsed. There are following examples which show inter-linkages exits
in several ways:
 Political decisions affect the economic environment.
 Political decisions influence the country’s socio-cultural environment.
 Politicians can influence the rate of emergence of new technologies.
 Politicians can influence acceptance of new technologies.
The political surroundings endure possibly among the least predictable con-
stituents in the business surroundings. A continuing political environment
endures, as democratic governments embrace to endeavour re-election ev-
ery minimum time. This extraneous constituent of business encompasses the
consequences of compulsion groups. Pressure types incline to adjust gov-
ernment policies.
As political approximations in conflicting domains diversify, the political im-
pact contends. The country’s population democratically determines unplug
government approach. In autocratic systems, government’s command de-
rives from a determine label.
Distortion is a barricade to economic establishment for repeated domains.
Numerous professions endure as well as develop near approaching bribes to
government functionaries. The achievement as well as development of these
11
INTRODUCTION TO enterprises is not based on the approximate they assign to customers. There
INDIAN BUSINESS are certain political factors which are responsible for affecting business such
ENVIRONMENT as:
 Bureaucracy
 Corruption level
 Freedom of the press
 Tariffs
 Trade Control
 Education Law
 Anti-trust law
 Discrimination law
 Data protection law
 Environmental Law
 Health and safety law
 Competition regulation
 Regulation and deregulation
 Tax policy ( tax rates and incentives)
 Government stability and related changes
 Government involvement in trade unions and agreements
 Import restrictions on quality and quantity of product
 Intellectual property law (Copyright, patents)
 Consumer protection and e-commerce
 Laws that regulate environment pollution
1. Which among the following law is not concern with political factors
affecting business
a. Data protection law
b. Environmental Law
c. Discrimination law
d. Traffic Law
2.5 Social Environment
There continues no question that the federation exists consecutively convert-
ing. The savours along with fabricates are a comprehensive model of this
alteration. One of the commanding purposeful asymmetries endures the de-
veloping elevation of communal agencies. Communal networking websites
appreciate Facebook being satisfy very familial among the younger people.
The adolescent customers embrace advanced facilitated to mobile phones
along with computers.
The younger duration determines the ability to facilitate digital technology to
market online. Older commoner will feasibly attach to their conventional ap-
12
proximations. The consequence of altering assortment is an frequent con- TYPES OF BUSINESS
versed. You additionally believe that these converting alternates embrace a ENVIRONMENT
dearness on businesses also. Adjustments in the communal alternates can
impact a enterprise in repeated asymmetric ways.
Such types of changes are taken care effectively in depth. For this, it should
use certain types of environmental analysis like pest analysis. It is found that
step analysis is variation of pest. Apart from these, there are certain extended
versions which includes pestle, steep and steeple analysis. There are certain
factors which should be assessed that could be:
 Political
 Economic
 Technological
 Environmental
 Ethical
 Legal
Businesses determine an environmental assertion depending on the descrip-
tion of behaviours. Furthermore, collective of them examine the communal
alternates. In the communal category for these arguments, you embrace to
observe cautiously at the communal adjustments. You will additionally claim
to display into the cultural alterations which acquire position in your busi-
ness environment. Market examination is a finicky measure of this category.
It is energetic which will glance the directions as well as prototypes of the
group.
To assume the impacts favourable, you might hope to examine the alternates
in facts. Headmost companies examine the population development along
with era features. They additionally emerge attention in customer attitudes
along with conventionality adjustments. Your assertion can display if there
are damages in your marketing approach. It can additionally assist determine
new creeds.
Some of the social factors which will impact customer needs and size of
markets are:
 Lifestyles
 Buying habits
 Education level
 Emphasis on safety
 Religion and beliefs
 Health consciousness
 Sex distribution
 Average disposable income level
 Social classes
 Family size and structure
13
INTRODUCTION TO  Minorities
INDIAN BUSINESS  Attitudes toward saving and investing
ENVIRONMENT
 Attitudes toward green or ecological products
 Attitudes toward for renewable energy
 Population growth rate
 Immigration and emigration rates
 Age distribution and life expectancy rates
 Attitudes toward imported products and services
 Attitudes toward work, career, leisure and retirement
 Attitudes toward customer service and product quality
The above listed factors will affect in terms of attitudes, opinions and inter-
ests as a result, these will give impact on sale of products along with revenues
earned.
1. Which among the following social factor will impact customer needs?
a. Working habits
b. All of these
c. Lifestyles
d. Selling habits
2.6 Technical Environment
There are certain technological factors which will affect the businesses across
the globe as per demand which would result in changing behaviour as per the
need of traditional marketing. The fast formulation of technology needs cal-
culating explanation by businesses in order to persevere in a materializing
economic environment additionally preserve up with contemporary direc-
tions along with constructive motivations which detached combatants might
be approaching.
Such class of technological alternates grasp overlay either products along
with mechanisms that can efficiently display conclusive fortunes along with
alarms at the equivalent duration can assist as an authoritative appearance to
deal with confronting advantage that can a favourable driver in post scripts of
globalisation. Products can be sold in contemporary passages furthermore
procedures demonstrate awesome approximation to the business. Several of
the consequent points should be approximated:
 Understanding Web Terminology
 Technology legislation
 Internet/broadband — consumer & business markets
 Technology infrastructure in a country
 Technology for consumers and businesses with innovative products
and services.
14
 Secure Systems such as entry, pitons, digital certificates, SSL TYPES OF BUSINESS
 Change of distribution through latest technologies like Internet. ENVIRONMENT
 New communication tools for communication like Social media, CRM.

 Machinery
 Equipment
These technological factors will alter the business style and nature by provid-
ing speedy and dramatic resources. Numerous establishments with dedica-
tion, invests in different categories of equipment only in case when it is lucra-
tive and cost effective. Apart from these listed above; there are certain other
technological factors which affects the businesses and its environment such
as:
 Organisational change – It becomes quite boring and troublesome
when you have to handle many people in an organisation. To change
any process, procedure, shifting, alteration, the intimation to employ-
ees should be made well in advance and also try to keep them encour-
aging at the time of implementing such changes.
 Business processes – It will cover the use and application of latest
technology request as per the business needs, finding and calculating
business processes as per related objectives and goals. Such alter-
ations result in benefits to the company and also to the consumer.
 Sustainable Competitive Advantage – Observing at technology from
a constructive perspective instead of a necessary evil. Conventional
representations are reforming as well as benefits can be apprehended
by investing in recent technology however honourable obtaining tech-
nology for the sake of holding it is not adequate, exercising a strategic
approximation is the focal in array to achieve.
 Costs involved – a compulsory tariff in today’s materializing surround-
ings. Although, it’s comprehensible that several organisations are irre-
sponsible to invest ensuing to mechanisms being delinquent quite fre-
quent, furthermore the ones who display this expenditure as an expe-
dience to appropriation economic benefit as well as acquire a well-
developed approach accompanied that could favour immensely.
 Efficiency – productivity, lessening manual labour charges, cost-ef-
fective overall alternate as it can ease, rush up as well as elaborate
correctness (or e.g. departments can collaborate or assure a demand-
ing event or circumstance of an order/delivery/service from dissimilar
positions in the Value Chain).
 Information Security/Contingency Planning – Technology provides
a lot of advantages but we should also take into consideration the
responsibilities that come with it.
15
INTRODUCTION TO Check your progress 5
INDIAN BUSINESS 1. Which among the following is not a technologic factor ?
ENVIRONMENT
a. Facebook
b. Environment
c. Social media
d. Internet
2.7 Cultural Environment
Communal as well as cultural alternates are considerable to approximate while
constructing as well as exercising a vending approach of a business. These
often-linked furthermore somewhat contradictory alternates acquire conflicting
conducts on the alternatives of customers along with consumers. Essentially,
socio-cultural alternates are conventionalities, habits along with appraises
that act a group. More particularly, cultural arrangements encompass aes-
thetics, education, language, law as well as politics, religion, social organiza-
tions, technology along with material culture, values also attitudes. Commu-
nal alternates constitute cross-reference categorizes, family, role along with
occasion in the society. Small-business holders should be attentive of as well
as accept these alternates coherence with fetching conventionalities.
As constituent of the culture, social committee is the procedure a society
arrays itself, how it approximates brotherhood, condition approximation, social
institutions as well as interest groups. For example, the position of women in
a coalition, whether they are the decision-makers in shopping, for prototype,
is a clear alternative in vending. A major attentiveness group in the domain —
similar as oil establishments can additionally authorize union. The selling of a
concise business can be beneficial by developing its broadcasting approach
on women or moms, a definite attention group or a leader that embraces the
biggest control in the culture.
1. Which among the following is not a cultural environmental factor ?
a. law
b. none of the above
c. education
d. language
2.8 Educational Environment
It is studied that if the level of education in a society is high, which means that
the literacy rate is high, then it will affect the social values in an impressive
style and change in attitude. If a person is literate he can easily distinguish
among good or bad and right and wrong. It is found that if a person is literate
then he/she will have better attitude towards the work. With the result of
literacy, if people are into business, then they can easily think about related
means of doing business and can apply latest techniques and technology to
expand. It will be easy for such persons to decide and can take instantaneous
decision on related business matters.
16
With education, business needs of employers’ and customer will increase TYPES OF BUSINESS
with their demands. ENVIRONMENT
An educated person can able to tackle any business problems easily and at
the same time can reach to any alternatives. With increase in education, the
knowledge among the society will also spread.
1. One of the main advantage of business growth results from:
a. money
b. habit
c. education
d. travelling
2.9 Legal Environment
Numerous alterations in the law commence from government instruction.
Numerous of these laws are Europe-wide, for simulation, the balusters for
bus transport evacuations. First makes certain that complete its buses gather
these conditions. Constitutional adjustments that control assignment are ap-
proximately tied up with political ones. First has to contemplate as well as
arrange to gather forthcoming defensible alterations. From 2010, as portion
of a campaign designated Carbon Reduction Commitment, First as well as
other companies hold expectation to acquire carbon entrusts. These entrusts
will authorize companies to bring about particular amounts of carbon emis-
sions. First is already developing a profit and loss to conduct this further-
more is assigning out filter plans for assuming how much CO2 it will gener-
ate after 2010.
Laws Affecting Businesses
Businesses are predominating to country’s legal approach. Several of the
laws particularly consolidate to business, while numerous are commonly ap-
propriate to all. Increasingly, if you conduct business overseas, you will ad-
ditionally be predominate to the laws of each external country where you
endeavour business, as well as international laws as well as agreements ven-
erating such units as exchange as well as charges.
Organizational Law
If your business is arranged as a judicial entity, it control be predominate to
the state coordination which coordinates the activity along with behave of
that category of entity. Official business entities encompass:
 Corporations Partnerships Limited partnerships
 Limited liability partnerships Limited liability limited partnerships Lim-
ited liability companies
Securities Law
Businesses that seek to obtain financing through investors may be subject to
securities law. For example, if you decide to offer promissory notes - a spe-
cial type of loan - to investors, the offering will often be considered the
17
INTRODUCTION TO offering of a security and will subject you and your business to state and
INDIAN BUSINESS federal securities laws and regulations.
ENVIRONMENT
Employment Law
Businesses that exercise masses along with federal laws accompanied to em-
ployment, constitutes anti-discrimination laws, occupational hardiness as well
as protection laws that are described to guard the hardiness as well as fitness
of employees, workers appeasement laws that appease workers harmed on
the job, wage along with hour laws, furthermore external labour laws regard-
ing unions.
Contract Law
If you assume to attain numerous acceptance with another person or entity,
you will be predominate to contract law. There is additionally a different
domain of law that promises clearly with government agreements, for the
time being acknowledged as government accumulation law.
1. The Legal business entities includes:
a. Internet
b. education
c. corporations
d. Power
2.10 Cross-cultures Environment
Business is not acted in an equivalent showiness from classicalism to stylish-
ness. Posteriorly, business associations are elaborated when managerial, sales,
along with technical personnel are domesticated to be attentive of domains
likely to commence communication complexities as well as struggle against
cultures. Comparatively, international communication is consistent further-
more empowered when merchants can contemplate domains of prevalence.
Comprehensively, business in common is elaborated when people from con-
trasting cultures determine fresh applications to venerable problems conceiv-
ing solutions by assembling cultural perspectives along with inspecting the
problem at hand from each other’s contradictory cultural perspectives.
Problems in business declaration comported against cultures frequent arise
when participants from one culture are unable to affirm culturally discovered
alterations in communication behaviours, traditions, as well as absorption
processing. At the best elementary level, difficulties may exist when one or
additional of the people encompassed connect to an ethnocentric appearance
of how to behave business. Ethnocentrism is the conviction that one’s ac-
quire cultural group is somehow innately better to others.
It continues at ease to discuss that ethnocentrism solitary controls the ada-
mant or those inattentive of other cultures, additionally therefore is incred-
ibly to be a major alternate in one’s acquire business communication. Al-
though, complexities oncoming to a misinterpretation of constituents in cross-
cultural communication it may authorize consecutive educated people. Eth-
18
nocentrism is double-crossing exactly since fractions of many classicalism TYPES OF BUSINESS
envision their acquire behaviour as feasible, because that behaviour appears ENVIRONMENT
for them. People incline to acknowledge the measures of the community
around them as complete values. on account of each cultivation embraces its
own category of values, repeated quite deviated from those approximations
declared in other cultures, the consideration of acquiescing as well as disre-
spectful, absurd along with brilliant, additionally ceaseless accurate as well
as aberrant become botched. In international business, challenges appear re-
vering what is appropriate by which culture’s approximations, what is astute
by which culture’s appearance of the world, along with what is absolute by
whose standards.
Thus no one autonomous is possible to determine the delicate commences of
ethnocentrism that appearance that he or she is, international business prac-
titioners essential be characteristically attentive in behaving business com-
munication against cultures. It is compulsory to determine to elevate higher
than culturally drowned channels of observing the globe. To do this, one
expects to comprehend how the conception of an allotted advice changes
depending on the culturally domineering observation of those communicat-
ing. Culture articulately controls the communication procedure in an inter-
national business apportioning through seven variables:
 Language
 Environmental and technological considerations
 Social organization
 Contesting and face-saving
 Authority conception
 Non-verbal communication behavior
 Time conception
1. Which among the following are factor responsible for Culture ?
a. social organization
b. all of above
c. language
d. technological
2.11 Let Us Sum Up
In this unit we have learnt that the result of modernisation shows that things
will becomes obsolete day by day with invention of every new technology. It
is related to external factors which are beyond the control of the business. It
is studied that there are several set of external factors which will impact the
business of a country that are economic factors, social factors, legal factors,
demographic factors, technical factors etc.
It is found that there are regulations of certain business activities which tend
to save particular government agencies in terms of environment regulations
19
INTRODUCTION TO by analysing business ascertained as per standards that are used to lower any
INDIAN BUSINESS adverse effects. It is found that the economic surroundings consists relevantly
ENVIRONMENT extraneous alternates in a business establishment along with the broader mod-
eration that can authorize a business.
The technological factors will change the business style and nature by provid-
ing speedy and dramatic resources. Numerous establishments with dedica-
tion, invests in different categories of equipment only in case when it is lucra-
tive and cost effective. Communal as well as cultural alternates are consider-
able to approximate while constructing as well as exercising a vending ap-
proach of a business. These often-linked furthermore somewhat contradic-
tory alternates acquire conflicting conducts on the alternatives of customers
along with consumers
Answers: (1-d)
Answers: (1-d)
Answers: (1-b)
Answers: (1-a)
Answers: (1-d)
Answers: (1-d)
Answers: (1-a)
Answers: (1-c)
Answers: (1-d)
2.13 Glossary
1. Liberalization - Liberalization refers to the process of eliminating un-
necessary controls and restrictions on the smooth functioning of busi-
ness enterprises.
2. Privatization - Privatization refers to reducing the role of public sec-
tor by involving the private sectors in most activities.
3. Globalization - Globalization means ‘integrating’ the economy of a
country with the world economy. This implies free flow of goods and
services, capital, technology and labour across national boundaries.
20
2.14 Assignment TYPES OF BUSINESS
ENVIRONMENT
Discuss some educational factors that will improve the business in a society?
2.15 Activities
Compare among organisational law and employment law in detail?
2.16 Case Study
Can an organisation grow its business in case of a weak economy? Discuss.
1. Brake, Terence, et al. Doing Business Internationally: The Guide to
Cross- Cultural Success. New York: Irwin, 1994.
2. Hall, Edward T. The Silent Language. Greenwich, CT: Fawcett Publi-
cations, 1959.
3. Hickson, David J., and Derek Salman Pugh. Management Worldwide:
The Impact of Societal Culture on Organizations around the Globe.
New York: Penguin USA, 1996.
4. Hofstede, Geert. Cultures and Organizations: Software of the Mind.
London: McGraw-Hill, 1991.
5. Mead, Richard. International Management: Cross-Cultural Dimensions.
Cambridge, MA: Blackwell, 1998.
6. Nolan, Riall W. Communicating and Adapting Across Cultures: Liv-
ing and Working in the Global Village. Bergin & Garvey, 1999.
21
INTRODUCTION TO
INDIAN BUSINESS
ENVIRONMENT
Unit PROBLEMS OF GROWTH
3
: UNIT STRUCTURE :
3.1 Introduction
3.2 Unemployment
3.3 Poverty
3.4 Regional Imbalance
3.5 Social Injustice
3.6 Inflation
3.7 Parallel Economy
3.8 Environmental Problems Affecting Growth of Business
3.9 Let Us Sum Up
3.10 Answer for Check Your Progress
3.11 Glossary
3.12 Assignment
3.13 Activities
3.14 Case Study
 The Concept of Unemployment.
 The Concept of Poverty.
 The Concept of Regional imbalance.
 The Concept of Social injustice.
 The Concept of Inflation.
3.1 Introduction
Growth is the main aim of a business. Not every growth is required, but it
certainly comes with disruptions. In certain companies, adjusting with growth
is a matter of inputting new employees and promoting experienced employ-
ees into management. It is seen that in small companies like home business,
growth is not exactly required because of low overhead costs. For them,
growth relates to opportunity to move out of house and construct an inde-
pendent concern.
Unemployment serves as an important issues in business growth as it locks
people in poverty by generating economic growth in future since people loses
skills and become unemployable. It is seen that variation with uneven amount
of wealth is owned by small marginal of population by affecting social stabil-
ity.
In this block you will be given an idea about poverty and how poverty will
affect the growth of economy. The knowledge related to regional imbalance
in economic development and rapid industrialization on social injustices is
highlighted. You will be given with an idea about inflation on fixed income.
22
It is analysed that small companies have several unique problems which re- PROBLEMS OF
sult in significant growth potential where internal issues are created. Small GROWTH
businesses are constantly evolving and depend entirely on abilities and per-
sonalities of owners.
3.2 Unemployment
Unemployment is an important issue in growth of business. It basically locks
people in poverty by generating economic growth in future, as people lose
skills and become unemployable. It continues variation, with uneven amount
of wealth owned by small marginal population by affecting social stability.
Growth becomes enough as direct policy measures are required to handle
the underlying structural and demographic issues irritating the world's labour
markets.
The main reason to study unemployment is that it contributes to shortage
which always exists due to limited resources and unlimited human needs.
Consider the diagram shown in fig 1.1 where there are ways to reduce scar-
city. It is noted that full employment using all available resources makes the
productions of excess goods and services lowers shortage.
Fig 1.1 ways to reduce scarcity of unemployment

Types of Unemployment
In order to have an idea on how we can get potential level of output with
4.5% unemployment, we have to study the three causes of unemployment
as:
1. Frictional Unemployment
It is a type of unemployment that is created by workers who are look-
ing for their first job. This type of unemployment is good as without it,
the economy could not produce much possible output. For economy,
this type of unemployment is required as it achieve its potential level
of output.
2. Structural Unemployment
It is a type of unemployment of workers whose skills are not demanded
by employers. They are unemployed as they have insufficient skills to
get employment. Structural unemployment can result from changes in
the structure of demand for labour.
23
INTRODUCTION TO Under this unemployment, people not having required skills are not
INDIAN BUSINESS employed, so we can still produce potential level of output with avail-
ENVIRONMENT able resources even if there is structural unemployment.
3. Cyclical Unemployment
It is a type of unemployment that is caused by insufficient total spend-
ing. This type of unemployment results from recession of business. If
there is less aggregate demand firms respond by producing less. Out-
put and employment are reduced.
1. The important reasons to study unemployment is that it:
a. contributes to shortage
b. contributes to limited resources
c. contributes to unlimited human needs
d. all of above
3.3 Poverty
Poverty is the term used to describe when a person is unable to meet their
basic needs due to mainly economic constraints. The basic needs of a person
are clean water, adequate food, shelter, health, and education. When a person
does not have these basic needs due to economic constraints, they are consid-
ered to be living in poverty. Recognizing that economic growth represents
the single best answer to poverty, most governments and the development
community have focused their efforts on creating the right conditions for
growth. These conditions must take into account not only the quantitative
aspect of growth, but also its qualitative nature, so that it can be sustained
over time, ensuring fair economic and social progress and meeting the grow-
ing global population's aspirations. In other words, rapid and sustained pov-
erty reduction requires that all people in a country contribute to and benefit
from economic growth. It also requires that economic growth be sustainable
not only over time but with regard to natural resource deployment, so the
needs of future generations can be met as well as those of today. This is our
definition of sustainable development.
Investments in businesses are fundamental for economic growth and long
term, sustainable poverty alleviation. Businesses provide income, jobs, goods,
and services to enhance people?s lives and help them escape poverty. Among
the world’s poorest people, having a job is seen as the most important tool to
get out of poverty. A functioning business sector is crucial to achieve this 90
percent of all jobs are created in the private sector in developing countries.
Private businesses also account for most of a country?s tax revenues and thus
contribute to finance public goods, such as better health and education.
Many developing countries also have a one-sided economic structure. It is
therefore important that the economy becomes more diversified, so that the
business sector becomes more robust to, for example, fluctuations in the price
of a single commodity. Small and medium enterprises are particularly impor-
tant to achieve a more diversified economy.
24
Check your progress 2 PROBLEMS OF
1. Poverty relates to: GROWTH
a. meeting basic needs

b. not meeting basic needs
c. meeting economic constraints
d. all of above
3.4 Regional imbalance
However, the perception is that regional imbalances have actually got accen-
tuated, particularly over the past 15 years. Different parts of the country are
in different stages of development which is not uniform at any point of his-
tory. Even the problem of intra-state inequalities has not been adequately
addressed, with regional disparities persisting within all states to a greater or
lesser degree.
The Centre has an important role to play in promoting balanced develop-
ment in which all states, and regions within states, have the opportunity to
develop evenly. This equity promoting role demands that greater efforts be
made to remove the gaps in the provision of human development and basic
services and infrastructure so that no region or sub-region and no group
remains deprived of the fruits of development and at least attains a minimum
standard of living. The equity-promoting role of central planning assumes
added importance in the wake of the emerging policy environment. With the
opening up of economy and removal of controls, the play of market forces
may tend to make worse on disparities. As the economy gets increasingly
integrated with the global economy, the Centre may be required to play a
stronger equity-promoting role and to secure sufficient space for all the fed-
eral units to work out their own strategies of development, harnessing global
regimes or forces for the purpose, rather than being overwhelmed by them.
The Centre would also be required to ensure suitable a macroeconomic policy
framework for the growth of the economy in order to meet the aspirations of
the people. Furthermore, the focus on inter-state disparities masked the inci-
dence of intra-state disparities. The Tenth Plan had, accordingly, advocated a
multi-pronged approach to provide additional funding to backward regions
in each state, coupled with governance and institutional reforms. Midway
through the Plan, the Midterm Appraisal seeks to take a fresh look at the key
issues involved and strengthen/refocus strategies as warranted by the present
situation and the lessons gained through experience.
There is no clear historical consensus on the best mechanism for reducing
regional disparities. It is found that direct investment in public sector units
and capital and other subsidies for private sector in backward regions as-
sumes to be the best way of addressing regional imbalance by capital forma-
tion as well as income and employment generation. The Central Plans have
traditionally focused on setting only national targets. However, recent expe-
riences suggest that the performance of different states varies considerably
due to variations in potentials and constraints.
25
INTRODUCTION TO For example, although the growth of the economy as a whole has acceler-
INDIAN BUSINESS ated, the growth rates of different states have varied and have even deceler-
ENVIRONMENT ated in some of the poorest states. It is important to recognise that the sharp
increase in the growth rate and significant improvement in the social indica-
tors that are being contemplated for the Tenth Plan will be possible only if
there is a corresponding improvement in the performance of the relatively
backward states. Indeed, if the higher targets were sought to be achieved
simultaneously with the relatively slower progress in some of the most popu-
lous states, it would necessarily imply a very large increase in inter-state in-
equality
1. The regional imbalances of economic development is affected by:
a. Regional disparity in resources
b. Lesser resource utilization
c. Lack of education
d. Less demand of people
3.5 Social injustice
Social Justice in its essence is the culmination of a number of overarching
themes and values with practices for the general good of all of society. It
represents inclusive growth and fair play for every section of society with a
focus on protecting the weaker groups of the population. In India and in
developing world, social discrimination and injustice cannot be seen and un-
derstood as in more developed world. This part of the world faces a large set
of problems that has risen from social injustice and the violation of human
rights, sometimes out of necessity or simply due to ignorance.
The effects of rapid industrialization in the developing world can be seen
through the lens of poor infrastructure and its development, which entails the
acquisition of land and the displacement of indigenous people. This has be-
come fairly common and frequent, especially in the past three decades. A
major chunk of the problem was originally due to lack of awareness and the
transfer of important natural resources to industrial investors by the govern-
ment sometimes without any environmental considerations. More than 70%
of the local population still lives in rural areas today, and their survival de-
pends on these natural resources, but they were often subjugated to land
grabs, displacement mostly without any due process or compensation.
The federal government is starting to pressure local governments to let
marginalized populations remain on their land, or to find new land for them
to work and live. One of the new policies is the inclusion of a right to housing
for each poor and landless family.
26
1. Social justice is the balance between: GROWTH
a. Individual’s rights
b. Society
c. Fundamental rights
d. Family
3.6 Inflation
Inflation is the annual rate of increase in the price level.
Effects of Inflation
There are two major effects of inflation. “Redistributive effects” means that
inflation affects different groups differently. Some people are hurt by infla-
tion and some people are helped by inflation. The “output effects” of infla-
tion include its impact on how much is produced in an economy.
Redistributive effects of inflation:
Fixed-income groups will be hurt by inflation because their real income suf-
fers. Their nominal income does not rise with prices, but if there is inflation
the purchasing power of their pay check, or their real income, would de-
crease.
 Savers will be hurt by unanticipated inflation, because interest rate
returns may not cover the cost of inflation. Their savings will lose
purchasing power.
 Debtors can be helped by unanticipated inflation. Interest payments
may be less than the inflation rate, so borrowers receive “dear” money
and are paying back “cheap” dollars that have less purchasing power
for the lender.
 Creditors are hurt by unanticipated inflation since they will charge an
interest rate that is “too low” since they did not expect to be paid back
with dollars that are less valuable.
If inflation is anticipated, the effects of inflation may be less severe,
since wage and pension contracts may have inflation clauses built in,
and interest rates will be high enough to cover the cost of inflation to
savers and lenders.
 “Inflation premium” is amount that interest rate is raised to cover ef-
fects of anticipated inflation.
 “Real interest rate” is defined as nominal rate minus inflation premium.
 Anticipated: Increases in the price level which occur at the expected
rate
 Unanticipated: Increases in the price level at a rate greater than ex-
pected.
27
INTRODUCTION TO Output Effects of Inflation
INDIAN BUSINESS Demand-pull inflation has a stimulus effect on the economy resulting in greater
ENVIRONMENT
output as shown in fig 1.2.
Fig 1.2 demands pull inflation

In the Figure 1.2 there are 2 demand curves, AD and AD1. demand curve AD
shows the normal equilibrium.
as demand increases demand curves shifts from AD to higher position and
becomes AD1 but this triggers price rise and resulted into demand pull infla-
tion.
in the figure 1.3 cost pull inflation is shown. in this diagram important thing is
demand is not the triggering point it the cost of inputs which increases the
price and Perice line shifts from PL1 to PL" and demand contracts from RDO
to RDO". the cost of input means the cost of Rent for Land, Wages for la-
bors, Interest of Capital and Profit expectation.
Cost-push inflation has a contractionary effect resulting in less output.
Fig 1.3 cost pull inflation

1. The minimum interest rates and cash flows reflects:
a. inflation effects
b. opportunity effects
c. equity effects
d. debt effects
28
3.7 Parallel Economy PROBLEMS OF
GROWTH
Also called the underground, informal, or parallel economy, the shadow
economy includes not only illegal activities but also unreported income from
the production of legal goods and services, either from monetary or barter
transactions. Parallel Economy connotes the functioning of an unsanctioned
sector in the economy whose objectives run parallel, rather in contradiction
with the aroused social objectives. This is variously termed as „black
economy?, „unaccounted economy?, „illegal economy?, „subterranean
economy?, or „unsanctioned economy?.
3.8 Environmental problems affecting growth of Business
Business provides social needs, goods, and services to public to satisfy de-
mand to consumer. Business activities also have become a major contributor
to environmental destruction. The activities are consuming of resources and
processes in manufacturing need to be developed in order to save the envi-
ronmental sustainable development planning.
Key environmental issues affecting business include industrial waste, sus-
tainable development of raw materials and water and air emissions. These
issues affect business because laws require businesses to change equipment
and procedures to meet imposed standards, which costs businesses money.
Many businesses undertake stricter changes in an effort to preserve the envi-
ronment and do what is right. These businesses pay for the protective and
proactive environmental measures and attempt to recoup the expenses through
consumer good will or the added consumer base gained from an environ-
mentally friendly policy.
Waste
Businesses that manufacture products create, at some point in the manufac-
turing process, manufacturing waste. Environmental laws and good environ-
mental citizenship prohibit the indiscriminate dumping of manufacturing by
product, so businesses must decide how best to dispense with it. Many imple-
ment recycling programs; others sell what they can of the waste to other
manufacturers who use it in their own manufacturing processes as raw mate-
rial.
Sustainable Development of Raw Materials
All manufacturers use raw materials to put together their goods. When these
raw materials are natural, such as wood, laws and good environmental citi-
zenship require that the business take measures to replace what it uses. Christ-
mas tree farms are a prime example, as sellers buy from growers who harvest
and replant in order to keep from depleting entire forests of naturally occur-
ring pine trees.
Emissions
Manufacturing processes often generate air and/or water emissions, which
include particle or chemical-filled smoke, ash and particles and chemicals
that seep into ground water through run-off. Environmental protection laws
require businesses to protect the environment from exposure to these emis-
29
INTRODUCTION TO sions. New regulations are implemented frequently that require retrofitting of
INDIAN BUSINESS manufacturing facilities with increased protections, such as screens of even
ENVIRONMENT finer gauges and pond liners of newer and safer materials. All of these mea-
sures are costly to business and affect businesses first by decreasing profit
margins.
1. Which is not an environmental issue that affects business ?
a. pollution
b. waste
c. natural raw materials
d. emission
3.9 Let Us Sum Up
In this unit we have learnt that growth serves as main tool for business as not
every growth is required where certain companies, adjust with growth in
matter of inputting new employees and promoting experienced employees
into management. It is seen that unemployment is an important issue in growth
of business which basically locks people in poverty by generating economic
growth in future since people lose skills and become unemployable.
It is noted that poverty describe when a person is unable to meet basic needs
results from economic constraints. The basic needs of person are clean water,
adequate food, shelter, health, and education. As noted, perception is that
regional imbalances that has actually got accentuated over the past 15 years
where different parts of country are in different stages of development which
is not uniform at that point of history.
The idea of social justice culminates in a number of overarching themes and
values that practices general good of all society represented inclusive of growth
and fair play for every section of society with focus on protecting weaker
groups of population. It is elaborated that inflation serves wage and pension
contracts that may have inflation clauses built in with interest rates that re-
mains high enough to cover cost of inflation to savers and lenders.
Answers: (1-a)
Answers: (1-b)
Answers: (1-a)
Answers: (1-b)
Answers: (1-a)
30
Answers: (1-c) GROWTH
3.11 Glossary
1. Business - Any activity or organization that produces or exchanges
goods or services for a profit.
2. Capital Cost - expenditure or cost incurred by a company in order to
expand its business operations.
3. Capital - Resources and goods made and used to produce other goods
and services.
4. Cash - Money in the form of paper currency or coins (as distinct from
checks, money orders or credit).
3.12 Assignment
What is inflation?
3.13 Activities
What are some features of generation of black money?
3.14 Case Study
Sub-prim mortgage crises 2008.
China's debt problem.
1991 Reforms in India.
Exit of Britain from European union.
1. Stephen P. Cohen - India_ Emerging Power-Brookings Institution Press
(2001)
2. Ramesh Singh - Indian Economy - for Civil Services, Universities and
Other Examinations (2018, McGraw Hill Education) - libgen.lc
3. Khandwalla, P N (1988). “What Can Financial Institutions Do to Pre-
vent Corporate Sickness?” Vikalpa, Vol 13, No 2, April-June, 11-23.
4. Kharbanda, O P and Stallworthy, E A (1985). Corporate Failure: Pre-
diction, Panacea and Prevention. London: McGraw-Hill.
5. Ojha, P D (1987). “Finance for the Cotton Textile Industry: Problems
and Prospects,” RBI Bulletin, May.
31
INTRODUCTION TO BLOCK SUMMARY
INDIAN BUSINESS
ENVIRONMENT
In this block lots of information about business and economy with need and
importance are explained. Various environmental factors which affect the
business in India are explained with certain illustrations. For your knowledge
the block highlights specific rules and regulations that are associated with
specific factors are explained so that you should know while working and
discussing on it.
The block information is quiet useful for you or related user as it simply
explains about business and its working. The block will detail information on
how to run business with standard rule and regulations by overcoming envi-
ronmental factors.
32
BLOCK ASSIGNMENT
Short Answer Questions
1. What is Ethnocentrism?
2. What are the objectives of business?
3. Highlight a short social factors that will affect the business?
4. Write a short note on cultural environment?
5. What are the objectives of environmental analysis in terms of busi-
ness?
6. What is parallel economy?
7. What will be the effect of regional imbalance in economic develop-
ment?
Long Answer Questions

1. Write certain technological factors affecting business needs?
2. Write a short note on Compliance Requirements?
3. Describe some macroeconomic elements?
4. List some Environmental Factors affecting Business?
33
INTRODUCTION TO Enrolment No.:
INDIAN BUSINESS
ENVIRONMENT 1. How many hours did you need for studying the units ?
U n it N o. 1 2 3
N os of Hr s
2. Please give your reactions to the following items based on your reading
of the block:
3. Any Other Comments

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34
Dr. Babasaheb
Ambedkar BBAR-301
Open University
BLOCK-2 NATURAL ENVIRONMENT RESOURCES

AND ENVIRONMENTAL ISSUE
UNIT 1
ENVIRONMENTAL FACTORS AFFECTING BUSINESS
UNIT 2
NATURAL RESOURCES AND SUSTAINABILITY
UNIT 3
ENVIRONMENTAL ISSUE RELATED TO BUSINESS
NATURAL BLOCK 2 : NATURAL ENVIRONMENT RESOURCES AND ENVIRON-
ENVIRONMENT MENTAL ISSUE
Block Introduction
RESOURCES AND Natural Environment is an ultimate source of all the power which runs all types of
ENVIRONMENTAL human activities. All the resources which are essential for promoting and sustaining
business activities come from Nature, therefore Natural Environment has indispens-
ISSUE able role in the growth of all types of economic activities.
Countries in all over world have different environment conditions which make them
unique among nations. China which has written a new saga of Economic Growth has
achieved this with th help of Natural resources e.g. Rare Earth, Rare essential min-
erals which are needed to manufacture all modern technology equipments, batteries
and advance equipments are found in China in huge quantity. Its all role of Natural
Environment. Countries and parts of some countries like Bhutan, Switzerland, Bali
island chains, Africa attracts people because of their natural Environment, the busi-
ness of tourism industry is thriving there. The Center point of these activity is Envi-
ronment.
Middle Eastern countries which are famous for their oil fields and earning money by
selling Crude Oil to all most all countries, business was done on the bases of Oil and
group like OPEC were at center point of world economics and business as well as
politics just because of one natural resource called Oil. So the Topography, Climate,
minerals and water resources are essential for business and in turn Economic Growth.
Environmental resources are essential for Economic Progress but the art of using
these natural resources in favor of country's growth is another thing. There are many
countries which are rich in terms of Natural Resources but they are not able to use
those resources optimally in favor of their own growth due to the lack of Adequate
Infrastructure. e.g. Many African Nations and north est parts of India (Seven Sister
states) are examples of infrastructural lacking areas, although India has institutions
while many African Countries have no or less institutions.
There is common consensus among all nations that using environmental resources
by present pace is going to harm all the nations and saving environment and achiev-
ing sustainable development is essential, so countries are also making efforts to re-
duce carbon emission and encouraging more and more use of cleaner technologies in
every aspect of human life weather that is use of hybrid or electric engines in the car
or generating power from clean energy resources to the micro and individual con-
sumption of electricity in household, nature of these all activities is changing to
become more cleaner user to save environment. new technologies are being intro-
duced in agriculture sector to use less water and power, people are being encouraged
to use less water or charges are being taken on the use of water to discourage them
using more water, same way measures are being taken worldwide to reduce air pol-
lution as many countries have proposed time-line to ban petrol and diesel vehicles in
their respective countries. e.g. China has said that after 2024 all the four wheelers
should be free from petrol and diesel engines, Singapore till 2040, Norway till 2025,
Netherlands till 2030 all cars on fossil fuel will be banned etc.
After completing this block, you will come across with the knowledge of how typog-
raphy serves as an essential factor in economic development growth. The block will
make you to aware about effect of climate in economic development and needs of
certain factors which are responsible for growth development.
Block Objective
 Features about environmental problems affecting growth of business.
 The environmental factors affecting business.
 Role of typography in economic development.
 Study the effect of climate on economic development.
Block Structure
Unit 1: Environmental Factors affecting Business
Unit 2: Natural Resources and Sustainability
Unit 3: Environmental Issue Related To Business
36
Unit ENVIRONMENTAL FACTORS
1 AFFECTING BUSINESS
: UNIT STRUCTURE :
1.1 Introduction
1.2 Physical Factors
2.2.1 Topography
2.2.2 Climate
2.2.3 Minerals
2.2.4 Water resources
1.3 Cultural Factors
2.3.1 Infrastructure
2.3.2 Technology
2.3.3 Tradition
2.3.4 Political Set-up
2.3.5 Social Set-up
2.3.6 Educational Set-up
1.4 Let Us Sum Up
1.6 Glossary
1.7 Assignment
1.8 Activities
1.9 Case Study
 The Concept of environmental factors.
 The Concept of physical factors.
 The Concept of cultural factors.
1.1 Introduction
The location of an industry is one of the important problems which are nor-
mally faced by promoters. It is the responsibility of promoters which search
the location to which an enterprise should have simple access to raw materi-
als, labour, power, markets and certain other services such as banking, trans-
portation, communication, insurance and warehousing. Apart from other fac-
tors, location serves as an optimum where costs of production and distribu-
tion appear to be minimum.
37
NATURAL If location of industry is not suitable, it may cause many types of problems as
ENVIRONMENT cost in transport and unavailability of correct labour. It may also restrict to
the growth of firm. The problem of location is faced not only by new con-
RESOURCES AND
cerns but also by running concerns which have growth potentials. The grow-
ENVIRONMENTAL ing concerns have to take decisions about location of their new plants and
ISSUE sometimes, they are also faced with the problem of shifting the entire opera-
tions to a new place because of limitations of existing location and accommo-
dation. So to establish an industry you have to look to several economic
factors which led to growth.
1.2 Physical factors
It is important to see that both natural and physical factors are part of physi-
cal environment. Any successful business should consider both in its planning
processes which include:
1.2.1 Topography
Geographical location plays an important role in access to markets. Good
establishments are located around trade routes which are mostly maritime. It
is seen that many world’s poorest countries are severely hindered as
they are landlocked which are located either on high mountain ranges
or lack in navigations such as rivers or harbours.
For prosperity of business growth, typography is important. As goods can be
transported or bought inside through maritime services. If you have no ac-
cess to the coast, you not only have less service on ports but you have more
stress on land services.
1.2.2 Climate
Climate plays an important economic factor in increasing economy. It’s no
coincidence that poorest countries are in tropics, where it is hot, land is less
fertile, water is scarcer, where diseases flourish. It is seen that countries like
Europe and North America makes huge profit from tracts of fertile land hav-
ing temperate climate and good rainfall. Having an extremes climate, either
hot or cold, too much energy goes into simple business of survival for there
to be much leftover energy for development.
1.2.3 Minerals
It is seen that every country dealt with natural resources. It takes infrastruc-
ture to capitalise on these, but some places have distinct advantage over oth-
ers. Minerals serve as important part of economy. Nobody has any doubt
about how Saudi Arabia or UAE make their money. Among other advan-
tages, gold and diamonds have helped South Africa build the most successful
economy on the continent. These are all non-renewable resources – once
they?re gone, they?re gone, but while stocks last there is wealth to be made.
Finally, the flow of economic conditions depends more on resource flow.
Such resources are renewable which requires no management, wind, tide and
solar resources.
38
1.2.4 Water resources ENVIRONMENTAL
Competition for water has widely increased, and it has become more difficult FACTORS
to conciliate the necessities for water supply for human consumption, food
AFFECTING
production, ecosystems and other uses. Water administration is frequently
involved in contradictory and complex problems. Approximately 10% of the BUSINESS
worldwide annual runoff is used for human necessities. Several areas of the
world are flooded, while others have such low precipitations that human life
is almost impossible. As population and development increase, raising water
demand, the possibility of problems inside a certain country or region in-
creases, as it happens with others outside the region.
Over the past 25 years, politicians, academics and journalists have frequently
predicted that disputes over water would be a source of future wars. The
water wars hypothesis had its roots in earlier research carried out on a small
number of Trans boundary Rivers such as the Indus, Jordan and Nile.
These particular rivers became the focus because they had experienced wa-
ter-related disputes. Specific events cited as evidence include Israel?s bomb-
ing of Syria’s attempts to divert the Jordan's headwaters, and military threats
by Egypt against any country building dams in the upstream waters of the
Nile. However, while some links made between conflict and water was valid,
they did not necessarily represent the norm.
1. Which among the following is a physical factor?
a. climate
b. infrastructure
c. technology
d. tradition
e. Air transportation is cheaper.
f. Ports are coasty to operate.
2. Why land locked countries have problems in the growth?
a. Other countries are not supporting.
b. Sea transportation is not possible.
1.3 Cultural factors
Culture changes the very definition of “business”. Although cross-cultural
companies who do business together usually have similar goals, the path
toward achieving those goals can be wildly different.
1.3.1 Infrastructure
The performance of South Africa’s logistics industry is very dependent on its
transport infrastructure; logistics service provision, cross-border trade fa-
cilitation and telecommunications system. Transport infrastructure, arguably
the most important component of these, is a critical ingredient for economic
growth, development and wealth creation. Transport infrastructure invest-
ments are key determinants of performance in the transport sector?. In this
39
NATURAL study the survey indicated that 78% of the respondents felt that infrastructure
ENVIRONMENT quality in South Africa is an important factor constraining them. 72% saw the
lack of private sector engagement with government; 70% the road versus rail
RESOURCES AND
options; and 68% infrastructure in Southern Africa, as constraints. It was the
ENVIRONMENTAL view of the focus group that in some instances South Africa has a good infra-
ISSUE structure e.g. world class ports and harbors, however the operation thereof is
poor.
In a sense Transnet Freight Rail has a fairly good infrastructure, however it
has not been adequately extended and therefore there are many capacity prob-
lems. Consequently, road transport has increased with a negative influence
on the quality of the roads, which have not been maintained adequately to
keep up with the level of usage. The government mostly provide transport
infrastructure and the group felt that there is a general lack of accountability
within government institutions and inadequate action plans for engagement
with the private sector.
Government should allow the private sector to participate more in the provi-
sion of infrastructure, particularly rail. There is a general misalignment be-
tween infrastructure provided and the demand for it. Many organizations
have a need for rail transport, particularly for their bulk transport require-
ments. There is also a misalignment in infrastructure between South Africa
and other South African countries. South Africa, in comparison with other
African countries has a well-developed infrastructure, but when trade is ex-
tended to the neighboring and other African countries infrastructure becomes
a problem, to the detriment of trade and economic development of the re-
gion.
1.3.2 Technology
Technological factors affecting businesses all over the world demands a chang-
ing behaviour with regard to traditional marketing. The rapid development of
technology requires quick reaction by businesses in order to survive in an
emerging competitive environment and keep up with new trends and innova-
tive services which other competitors might be offering. These technological
factors can include both products and processes and can present opportuni-
ties and threats but it is vital for competitive advantage and is a successful
driver in globalization. Products can be marketed in new ways and processes
present immense Value to the business.
Technological factors affecting businesses and their environment:
 Organisational change – is usually quite difficult especially when a
high number of people are involved as routines will be modified. It is
recommended to inform employees in advance and keep them up to
date encouraging feedback when making such change.
 Business processes – integrating modern technology solicits identify-
ing the business requirements and evaluating the business processes
according to its objectives and goals. These changes should benefit the
company and the consumers.
40
 SCA (Sustainable Competitive Advantage) – looking at technol- ENVIRONMENTAL
ogy from a positive perspective instead of an evil. Traditional models FACTORS
are changing and advantages can be achieved by investing in modern
technology to have technology for sake of having no implementing AFFECTING
strategic plan. BUSINESS
 Costs involved – a necessary expense in today’s emerging environ-
ment. However, it’s understandable that some organisations are un-
certain to invest due to systems being outdated quite often, but the
ones who view this investment as an opportunity to gain competitive
advantage and have a well- developed strategy attached, could benefit
immensely.
 Efficiency – productivity, reducing manual labor costs, cost-effective
overall factor as it can simplify, speed up and enhance accuracy.
 Information Security/Contingency Planning – Technology provides
a lot of advantages but we should also take into consideration the
responsibilities that come with it. Businesses should take into account
the rise in data breaching and various cyber-crime elements and must
invest in effective ways of preventing or combating these factors. Imag-
ine if an important process becomes unavailable suddenly or a system
is hacked. Businesses must have these contingency plans in place in
order to protect their valuable assets.
1.3.3 Tradition
Various countries interact in business-related activities on a daily basis. How-
ever, these countries have different cultures. These differences in culture prove
to be obstacles in business communication. Factors such as language, ges-
tures, holidays and dress codes play a major role in business communication.
It is important to understand various cultures when participating in business-
related activities. Knowledge of cultural factors eliminates the common mis-
takes and misunderstandings associated with business communication be-
tween cultures.
1.3.4 Political Set-up
Political factors, in the context of the external environment in which a busi-
ness functions, are a type of external constraint acting upon a business. They’re
related to actions of governments and political conditions in the location
where the business conducts business or seeks to conduct business.
The first thing to recognize is that political factors constitute an external
constraint on a business, which just means that the political factors that af-
fect a business that completely out of company’s control.
The second thing to recognize is the type of external constraint is political in
nature rather than economic, even though the political can certainly affect
the economic and vice versa. The most prevalent political factors relate to
government activity and administrative practices of government.
41
NATURAL 1.3.5 Social Set-up
ENVIRONMENT Social changes may have a major impact on business:
RESOURCES AND The number of older people in the UK is rising. There are more people with
ENVIRONMENTAL bus passes in this country than ever before. The passes mean that users travel
ISSUE free, as the local authority pays first for providing the service. Many elderly
people prefer to travel by bus because it is convenient and safe.
Society’s habits and tastes are changing. People are more aware of the impor-
tance of the environment and becoming ‘green consumers’. Green consum-
ers prefer goods and services that are ‘environmentally-friendly’ and which
have less impact on the environment. The green consumer, for example, pre-
fers to travel by bus or train than by air or in a large car.
Statistics produced by the Department for Transport in 2007 pick out some
of the major trends. These statistics show a positive picture for First. The
market is growing and more people are realising the benefits of a more envi-
ronmentally- friendly form of transport.
1.3.6 Educational Set-up
Businesses are continually developing new technologies to provide the best
solutions for the market place. Intelligent companies find out what the most
appropriate technologies are for their businesses and use them. This is par-
ticularly true in transport.
Global trade, access to capital and information and the rapid expansion of the
basis of educated people will all have a positive effect on economic and social
growth. Many nations will begin to play a constructive role in the interna-
tional community. Most will, however, need substantial injections of capital
and managerial talent, intellectual property and other assistance if they are
doing so rapidly. The growth in expectations, bred by the popular media and
the impact of population growth, will demand that this progress is rapid.
1. In case of social setup, the green consumer travels by:
a. Bus and train. c. Air.
b. Motor vehicle. d. All of above.
2. Many organizations have a need for rail transport, particularly for:
a. Small transport. c. Bulk transportation.
b. Dangerous transportation. d. All of above.
3. Political factors are __________ and __________ of company.
a. External - in the control. c. External – out of the control.
b. Internal – out of the control. d. Internal – in the control.
1.4 Let Us Sum Up
In this unit we have learnt that geographical location plays an important role
in access to markets where good establishments trades. It is studied that cli-
mate plays an important economic factor in increasing economy while com-
petition for water has widely increased and become more difficult to concili-
42
ate necessities for water supply for human consumption, food production, ENVIRONMENTAL
ecosystems and other uses. FACTORS
It is found that culture changes the definition of business as cross-cultural
AFFECTING
companies doing business usually have similar goals having a path toward
achieving those goals. It is found that technology provides a lot of advan- BUSINESS
tages into consideration that come with business's rise in data breaching and
cyber-crime elements that invest in effective ways of preventing or combat-
ing these factors. It is seen that business are continually developing new
technologies to provide best solutions for market place. Intelligent compa-
nies find appropriate technologies for businesses.
Answers: (1-a), (2-b)
Answers: (1-a), (2-c), (3-c)
1.6 Glossary
Economic Development - The process of improving the quality of human
lives through raising living standards.
1. Economic Efficiency - A situation in which no one in a society can be
made better off without making someone else worse off.
2. Economic Growth - An increase in real output as measured by real
GDP or per capita real GDP.
1.7 Assignment
Explain cultural factors in detail.
1.8 Activities
Discuss technological factors affecting businesses and their environment.
1.9 Case Study
Comment on Global trade as factor affecting business.
1. Khandwalla, P N (1988). “What Can Financial Institutions Do to Pre-
vent Corporate Sickness?” Vikalpa, Vol 13, No 2, April-June, 11-23.
2. Kharbanda, O P and Stallworthy, E A (1985). Corporate Failure: Pre-
diction, Panacea and Prevention. London: McGraw-Hill.
3. Ojha, P D (1987). “Finance for the Cotton Textile Industry: Problems
and Prospects,” RBI Bulletin, May.
43
NATURAL
ENVIRONMENT Unit
NATURAL RESOURCES AND SUSTAINABILITY
RESOURCES AND 2
ENVIRONMENTAL
ISSUE : UNIT STRUCTURE :
2.1 Introduction
2.2 Renewable and Non-renewable Resources
2.3 Limitations of Non-renewable Resources
2.4 Need of Renewable Resources
2.5 Strategy for Conservation of Natural Resources
2.6 Let Us Sum Up
2.8 Glossary
2.9 Assignment
2.10 Activities
2.11 Case Study
 The Renewable and Non-renewable resources.
 The limitations of non-renewable resources.
 The need of renewable resources.
 The strategy for conservation of natural resources.
2.1 Introduction
Sustainability refers to the ability of keeping certain status or process in exist-
ing systems. It is linked with biological or human systems in respect to
ecology. It is seen that an ability of an ecosystem to function and maintain
productivity for long-lasting period refers to sustainability.
Living a sustainable lifestyle is another way to help. Natural resources com-
prises of land and several raw materials which can be found occurring as
natural substances. The value of such deposits depends on amount of extrac-
tion present. It shows that if even valuable resources exist in quantities as
compared to small in order to extract profitably or in form where extraction
exceeds difficult then the value is lessened as a result of consequence.
Also, if amount of available material for extraction and ease of such extrac-
tion creates exploitation which could be commercial viable then, value of
land will increases. As noted, the situation where natural resources or natural
capital is being used faster than replenishment result will lead to occurrence
of unsustainable situation.
44
2.2 Renewable and Non-renewable resources NATURAL
Renewable resources RESOURCES AND
These are the resources that get filled by environment over short periods of SUSTAINABILITY
time. Such type of resources are advisable to use as often it renews so fast
that it will regenerate by the time you will be able to use it.
It is found that solar energy is renewable resource as sun shines every time
which will bind together all energy before it goes out. Wind energy is also
another type of renewable resource as you cannot stop wind from blowing
further. Further we see that plants that grow for use in food and manufac-
tured products are also renewable resources. It is visualised that trees used
for timber, cotton used for clothes and food crops like corn and wheat all be
replanted and regrown after collection of harvest.
It is seen that animals are also part of renewable resource as plants; you can
breed them to make more. Livestock such as cows, pigs and chickens also
comes under this category.
It is noted that water is also many times considered as renewable resource as
you cannot really use up water. Liquid water used to produce hydroelectric
power, which receives from water flowing through dams.
Biofuels are part of renewable resources as fuels are made from living organ-
isms as Ethanol being a biofuel is derived from corn.
Non-renewable
A non-renewable resource is such type of natural resource which is mainly
used faster than it can be made by nature. Such type of resources cannot be
produced, grown or generated on scale which can sustain quickly as it con-
sumed. Once it is used up, there is no more available for future needs. It is
found that non- renewable are resources which consumes much faster than
nature can create them. The examples are:
 Fossil fuels (coal, petroleum, and natural gas)
 Nuclear power (uranium)
 Aquifers
But is seen that resources like timber or metals are considered renewable
resources.
1. Which among the following is a non-renewable resource?
a. Petroleum
b. Water
c. Wind energy
d. Livestock
2.3 Limitations of non-renewable resources
Non-renewable resources are such resources which cannot be renewed.
There are certain disadvantages:
45
NATURAL  Cannot be renewed and are fast depleting
ENVIRONMENT  Leave harmful by-products upon combustion by creating pollution
RESOURCES AND  Mining will lead to irreversible damage to adjoining environment
ENVIRONMENTAL  The fossil fuel pollutes the environment
ISSUE  They gets eventually run out
 Cannot be recycled
 On burning produces carbon dioxide which lead to global warming.
There are certain factors which lead to limitations of non-renewable resources
such as:
Environmental Consequences
The main disadvantages of non-renewable energy resources are that they have
negative effect on environment when mined, processed and consumed. As
see, the coal processing plants filter toxic metals into ground water and pro-
duces additional waste, while gasoline when burned in combustion engines
releases carbon dioxide and several related pollutants which lead to global
climate change. Natural gas, methane which is 20 times more effective at
trapping heat as compared to carbon dioxide makes more problematic as
greenhouse gas.
Health Risks
Apart from environmental factors, the disadvantages of non-renewable en-
ergy resources will include problems related to human health. As seen, ura-
nium, which is used in nuclear power plants, causes birth disorder and abnor-
mal heart, liver, and kidney functions on exposure which lead to cancers and
immune system malfunctions.
Supply and Demand
With the appearance of limited unsustainable energy reserves, non- renew-
able resources are becoming more and more expensive. As seen, the gas prices
as of today will keep on rising in prices as oil becomes rare and limited avail-
ability of gasoline resource.
Running Out
Normally it is analysed that all non-renewable energy resources gets depleted
which lead to failure of technologies as a result of out-dated. So for this, we
have to make use of other forms of energy production such as wind, solar and
geothermal power sources.
1. Which among the following is not a limitation of non-renewable
sources?
a. It lead to no depletion
b. Leave harmful by-products on combustion
c. Fossil fuel pollutes environment
d. Cannot be recycled
46
NATURAL
2.4 Need of renewable resources RESOURCES AND
It is seen that when a person wants electricity they he/she needs to buy it SUSTAINABILITY
from someone else. The average person will have access to buy coal mining
equipment or coal-fired power plants to make their own electricity. So, re-
newable energy systems on the whole, serves as an important step for keep-
ing national and international infrastructures intact in order to have its im-
portant to understand the scalability of renewable energy solutions. A person
who can’t afford their own coal-powered power plant will normally capable
of purchasing a home solar array or small wind turbine. Having their own
equipment of generating electricity will allow such person not to depend on
fluctuating prices or shortages from outside energy producers. It is further
analysed that renewable can often be gathered cleanly and safely in local or
regional communities as of much availability of inputs as national manufac-
turing and energy rates will not now depend on prices as set by unstable
foreign markets.
On considering employment, use of renewable energy becomes more attrac-
tive as national energy demand will meet by renewable resources which fur-
ther will led to increase in employment in energy sector by creating new jobs.
So it is visualised that there exists lots of good reasons to move toward the
use of renewable energy which can be both now and in future. However,
most powerful among such arguments exists simply at certain point. Finally,
it is concluded that renewable energy is reliable and plentiful and will poten-
tially be cheaper once technology and infrastructure improve. It includes
solar, wind, geothermal, hydropower and tidal energy along with biofuels
which are grown and harvested without fossil fuels. Non-renewable energy
like coal and petroleum, require cost explorations and are logically danger-
ous as it involves mining and drilling as it is more expensive as supplies
decrease with more increase in demand. Renewable energy produces only
minute levels of carbon emissions and hence helps fight against climate change
that was caused by fossil fuel usage.
1. The need of renewable source of energy results from:
a. increasing demand from people
b. access production of fuels
c. access growth of fossils
d. all of above
2.5 Strategy for conservation of natural resources
Conservation which is similar to development is for a person which aims to
achieve human goals mainly by use of biosphere. It aims to achieve them by
ensuring particular use. Conservation’s concern for maintenance and
sustainability is a rational response to the nature of living resources and also
an ethical imperative, expressed in the belief that we have not inherited the
47
NATURAL earth from our parents, but is borrowed from children.
ENVIRONMENT Conservation of natural resources usually embraced in broader conception of
RESOURCES AND conserving the earth itself by protecting its capacity for self-renewal. Particu-
larly complex are the problems of non-renewable resources such as oil and
ENVIRONMENTAL
coal and other minerals in great demand. Current thinking also favours the
ISSUE protection of entire ecological regions by creation of biosphere reserves.
Natural resources are an important material basis for a stable national economy
and social development. They can be divided into two categories:
 Exhaustible: which includes minerals
 Inexhaustible: which includes forests and grasslands
With industrialization and urbanization, mankind’s great demand for natural
resources and their large scale exploitation and consumption has resulted in
the weakening, deterioration and exhaustion of these resources. One difficult
task faced by all countries is to guarantee the lasting utilization of natural
resources at the lowest possible environmental cost while still assuring eco-
nomic and social development.
The immediate purpose is to bring about three sorts of legislation: that which
controls national resources, that which controls state resources, and that which
directs the development of resources privately controlled. In this the coop-
eration of the states is not only desirable, it is absolutely essential. The federal
authorities may enact laws for the maintenance and development of the pub-
lic domain, both in land and in water; they may enter into partnerships, and do
so enter, for the improvement of navigation and power in navigable streams
and for carrying on irrigation; they may acquire land and establish reservoirs
where such reservoirs can be shown to be necessary for the purpose of main-
taining navigation; they, may shape the methods of taking fuel from the public
land by inserting their requirements in the lease or deed under which the land
is partially alienated. In addition, they may carry on a campaign of education
aimed to persuade individuals to adopt rational methods. But a state can go
much farther. It may drain local swamps. It may create reservoirs on small
and insignificant streams, for the purpose of providing a town water supply,
of improving water-power, or for any reason whatever. It may enter into
partnership, with its citizens and cooperate with them in forest development,
in guarding against fires, in the erection of dams, in the management of mines,
in any way it may choose. It may exercise its police power to provide that
those who own private forests must police them, must cut fire-breaks, must
burn their slashing, and may not cut to exceed the increment in any year. It
may encourage tree planting by direct legislation and by passing taxes on
wooded lands. It may by law put land in escrow during the carrying out of
large improvements; and it may even direct the economy of fuel at the fur-
nace.
48
Check your progress 4 NATURAL
1. Which among the following is an exhaustible resource? RESOURCES AND
a. minerals b. grasslands SUSTAINABILITY
c. forests d. all of above
2. _________natural gas can generate more greenhouse effect, its more
capable to catch heat.
a. CO2 b. methane
c. O2 d. all of above
2.6 Let Us Sum Up
In this unit we have learnt that renewable resources are resources which fill
by environment in short periods of time while non-renewable resource is
such type of natural resource which is mainly used faster than it can be made
by nature. It is found that the main disadvantages of non-renewable energy
resources are that they have negative effect on environment when mined,
processed and consumed. Further, we see that renewable energy is reliable
and plentiful and will potentially cheaper once technology and infrastructure
improve as solar, wind, geothermal, hydropower and tidal energy along with
biofuels which are grown and harvested without fossil fuels. So we noted
that conservation of natural resources are usually embraced in conception of
conserving earth by protecting its capacity for self-renewal in complex prob-
lems of non-renewable resources.
2.7 Check Your Progress
Answers: (1-a)
Answers: (1-a)
Answers: (1-a)
Answers: (1-a), (2-a)
2.8 Glossary
1. Biodiesel - A diesel fuel made from natural oils like rapeseed oil which
mixed with normal diesel fuel before use in cars.
2. Biomass - It is an organic matter as crops and manure that on burns
creates renewable energy.
3. Climate change - It is a change in Earth’s climate as the pollution
created by humans particularly carbon dioxide produced on burning
fossil fuels.
4. Geothermal energy - Energy uses heat from inside of Earth’s core to
produce electricity or heat water or homes.
49
NATURAL 5. Hydroelectricity - A renewable energy which comes from using power
ENVIRONMENT of water as rivers and the sea.
RESOURCES AND 6. Nuclear energy - Energy which generates electricity from breakdown
of radioactive materials called as nuclear fuels.
ENVIRONMENTAL
ISSUE 2.9 Assignment
1) Make small note on use of renewable and nonrenewable resources in
the world.
2.10 Activities
Compare renewable and non-renewable resources with examples.
2.11 Case Study
Discuss on natural resource conservation.
1. Narayana, V.V and Rambabu, 1982, „Estimation of soil erosion in In-
dia?. Journal of irrigation and drainage engineering.
2. Sarin, Madhu and Renu Khanna, 1991, Wasteland development by a
women?s group: a case study. New Delhi: ILO.
3. Sharma J.P. and B.P. Sinha, 1993, „Traditional wisdom of hill farmers
of Uttarkashi?. National Seminar on Indigenous Technology for Sus-
tainable Agriculture.
50
Unit ENVIRONMENTAL ISSUE RELATED TO BUSINESS
3
: UNIT STRUCTURE :
3.1 Introduction
3.2 Global Warming and Kyoto Protocol
3.3 Oil Crisis and its Impact on Business
3.4 Problems Related to Water Resources Management
3.5 Industries and Pollution – Air, Water, Noise
3.6 Let Us Sum Up
3.8 Glossary
3.9 Assignment
3.10 Activities
3.11 Case Study
 The Concept of Global warming.
 The Concept of Kyoto Protocol.
 The Concept of Oil Crisis and its impact.
 The Concept problems related to water resources.
3.1 Introduction
There are certain environmental issues which affects the business which will
include:
 industrial waste
 sustainable development of raw materials
 Water and air emissions.
Such type of issues will affect the business as these laws require businesses
to change equipment and procedures so as to meet the imposed standards
which involve much money in business.
Waste
Businesses that manufacture products create, at some point in the manufac-
turing process, manufacturing waste. Environmental laws and good environ-
mental citizenship prohibit the indiscriminate dumping of manufacturing by-
product, so businesses must decide how best to dispense with it. Many imple-
ment recycling programs; others sell what they can of the waste to other
51
NATURAL manufacturers who use it in their own manufacturing processes as raw mate-
ENVIRONMENT rial.
RESOURCES AND Sustainable Development of Raw Materials
ENVIRONMENTAL All manufacturers use raw materials to put together their goods. When these
ISSUE raw materials are natural, such as wood, laws and good environmental citi-
zenship require that the business take measures to replace what it uses. Christ-
mas tree farms are a prime example, as sellers buy from growers who harvest
and replant in order to keep from depleting entire forests of naturally occur-
ring pine trees.
Emissions
Manufacturing processes often generate air and/or water emissions, which
include particle or chemical-filled smoke, ash and particles and chemicals
that seep into ground water through run-off. Environmental protection laws
require businesses to protect the environment from exposure to these emis-
sions. Remedial process include placing screens of specified gauges over smoke
stacks, filtration of waste water and lining of retention ponds with clay and
poly liners. New regulations are implemented frequently that require retrofit-
ting of manufacturing facilities with increased protections, such as screens of
even finer gauges and pond liners of newer and safer materials. All of these
measures are costly to business and affect businesses first by decreasing profit
margins.
3.2 Global warming and Kyoto Protocol
Global Warming
Greenhouse Gases results as an outline gases which absorbs infrared radia-
tion in the atmosphere. It is found that certain levels of greenhouse gases are
Natural Resources and Environmental Issue required to maintain life. Among
all, the greenhouse gases include carbon dioxide, methane, nitrous oxide and
sulphides.
With interference of humans, such gases increase into atmosphere with the
result of fossil fuel emissions. Moreover, CO2 is not only aggressive GHGs,
the large amount of it in our atmosphere causes global surface temperatures
to rise. It is found that CO2 carries 80% of global warming. Fig 2.1 shows the
trend of CO2 concentration in past 1000
Fig 2.1 Trends in CO2 concentration

52
ENVIRONMENTAL
ISSUE RELATED
TO BUSINESS
Fig 2.2 Climate change

Kyoto Protocol: Emission Regulations
Kyoto Protocol is the first internationally binding treaty which was made to
reduce emissions of greenhouse gases which was signed by 150 nations in
Kyoto, Japan in December 1997 in which, lower emissions of carbon diox-
ide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sul-
fur hexafluoride will result in 5% low 1990 to 2008–2012. Its idea is:
Options to reduce emissions include:
 Improved technologies
 Nation-created sinks
 Tradable Permits for Emissions Unfortunately, these have some down
sides:
 Sometimes it is less expensive to buy permits then decrease emissions
 There are no credits for conservation, even though existing forests
contain 40% of terrestrial carbon.
The problem with protocol is that:
Currently, 166 countries have ratified the protocol but:
 US initially did joined kyoto protocol but opted out in 2001 citing
unnecessary manufacturing advantages to the developing countries,
indirectly for China which is now no 1 green house emitter country.
 Developing nations, such as China and India are not required to re-
duce or limit their emissions under the Kyoto Protocol. The United
States has not ratified the Protocol because the Bush Administration
believed it gave developing countries a manufacturing advantage that
would hurt the U.S. economy.
53
NATURAL
ENVIRONMENT
RESOURCES AND
ENVIRONMENTAL
ISSUE
Fig 2.3 TOP CO2 emitter countries

In this protocol:
 The disproof to United States shows developing countries have no
financial resources that support changes to lower emissions.
 The per capita have low emissions that are not correct to judge nation-
ally.
Fig 2.4 per capita CO2 emitter
54
It is seen that the world level of emission is reached to 400 ppm as shown in ENVIRONMENTAL
fig 2.5. ISSUE RELATED
GLOBAL CO2 atmospheric concentration TO BUSINESS
Global mean annual concentration of carbon dioxide (CO2) measured in parts per million (ppm).
Source NOAA/ESRL(2018)
OurWorldinData.org/co2-and-other-greenhouse-gas-emission/.CCBY
Fig 2.5 World emissions

In this protocol, it is seen that:
 Even though rules were changed for Kyoto Protocol, the results would
show minimum difference.
 The difference between current levels of United States, EU, China and
India with ten percent reduction level exists from 1990 levels.
Such type of models will reflect 2002 levels which have already reached.
Under the Kyoto Protocol, future emissions reduce by lowering carbon di-
oxide emissions and increasing sinks. Hence world projection of 2020 with
current levels of CO2 is shown in fig 2.6.
Projected Global CO2 Emission from Fossil Fuels in 2020
Fig 2.6 projection of CO2 emission (2020)

55
NATURAL It is visualised that:
ENVIRONMENT  As, Kyoto Protocol was strictly done for every nation to lower emis-
RESOURCES AND sions by 10%, which includes developed and developing nations.
ENVIRONMENTAL  Also, action be taken to lower emission limits and more carbon sinks
ISSUE in order to have significant impact on slow increase of atmospheric
CO2 emissions.
1. Which among the following is not a greenhouse gas?
a. carbon monoxide
b. carbon dioxide
c. methane
d. nitrous oxide
3.3 Oil Crisis and its impact on business
Some observers believes that high dependence of most modern industrial
transport, agricultural and industrial systems on relative low cost and high
availability of oil causes oil production to decline and results in severe in-
creases in price of oil that will have negative implications on global economy.
Predictions vary greatly as what exactly such negative effects result.
It is analysed that when political and economic changes occur in reaction to
high prices and shortages instead of reaction to threat, then degree of eco-
nomic damage to importing countries will mainly depend on rapid oil imports
declination. The oil exports drop more quickly as compared to production
drops which results from domestic consumption in exporting countries. With
this, the shortfalls of supply will cause extreme price inflation, unless demand
is easy with planned conservation measures.
With the hope, estimations of production forecast global declination by 2020
or later, and assume major investments in alternatives which occurs before oil
crisis begins, without requiring major changes in lifestyle of oil-consuming
nations. Such models show price of oil at escalating and retreating fuel and
energy sources.
Negative predictions of future oil production occurs on analysis that either
the peak has occurred or global system is on verge of peak which occurs
shortly as proactive mitigation no longer be option which is predictable to
global depression, perhaps even initiating chain reaction of various feedback
mechanisms in global market that might encourage fall down of global indus-
trial civilization, potentially leading to large population declines within a short
period.
In case of imbalance exists among demand and supply there occurs two pa-
rameters:
 Letting price take care due to imbalance
 Imposing restraints on supply or demand
If there is not enough supply, the consuming countries can restrain demand
56
by imposing price controls, and if there is not enough demand, producers can ENVIRONMENTAL
cut production. The latter is what the oil producers did over the last one year. ISSUE RELATED
During early stages of history, oil industry attempts to manage supply which TO BUSINESS
was not met with success as they stuck too long to crude price which failed
to bring long-term equilibrium in supply and demand. It was analysed that
supply management system administered by oil majors during first 12 years
of OPEC’s existence, when prices kept under $2 per barrel. This in fact was
responsible for the first oil shock of 1973 as demand soared and supply did
not keep up, though the Arab governments also added a political hue to their
attempt to wrest control of their oil industries from the majors. The second
was the supply management system administered mostly by Saudi Arabia in
OPEC during 1982-85. The kingdom single-handedly maintained an official
selling price of $28 per barrel despite shrinking demand and the emergence
of new sources of supplies worldwide. This inevitably led to the price of oil
crashing in 1985-86.2
After the end of World War II, a phenomenal increase in demand for oil and
consequently production of crude oil in Middle East increases large revenues
to producing countries. It highlights not only importance of oil, but also
emphasised dependence of economies on oil revenues. Along with this
realisation came the resentment of the lack of control these producing coun-
tries had on their oil industries, and when the oil majors unilaterally refused
to increase oil prices in 1959 and again in 1960, first the oil producers suc-
ceeded in creating OPEC, which provided them the opportunity to wrest
more power from the oil majors over pricing and production and then, over
time, nationalising their oil industries.
During the crisis, India, along with other developing countries enjoyed friendly
relations with Arab states with an intension to achieve favourable treatment.
However, OPEC expressed its inability to adopt dual pricing system. In 1973
India’s oil import bill was to the tune of around $414 million, and it was
projected to go up to around $1,350 million in 1974 because of the price
hike. This was around 40 per cent of its potential export earnings, and twice
the amount of its existing foreign exchange reserves. The other South Asian
oil importing states like Pakistan and Sri Lanka were similarly affected.
It is a fact that high prices encourage exploration and development, even in
high-cost areas, evidence of which can be seen in the current restoration of
interest in the Caspian region and offshore West Africa. At the same time,
this diversification of oil sources acts as an insurance policy against supply
disruptions. Also, the growing role of natural gas in the overall energy mix
provides a further buffer. Information technology has also allowed the indus-
try to search for oil and even make a profit at $15 per barrel, which is about
half the threshold price for exploration activities just a decade ago.
1. Oil crisis begins due to lack of:
a. reserves
b. price
c. excess use
d. access production
57
NATURAL 3.4 Problems related to water resources management
ENVIRONMENT The presence and access to freshwater is an important determinant of pat-
RESOURCES AND terns of economic growth and social development. Water is an important
ENVIRONMENTAL resource for sustaining economic development in all sectors. Freshwater is a
necessary input for:
ISSUE
 industry and mining
 hydropower generation
 tourism
 subsistence and commercial agriculture
 fisheries and livestock production
Such activities are central to livelihoods and human interest as they provide
employment and contribute to national economies through, among other
things, export earnings. Water is not only an economic good but also a social
good. Safe water supply and appropriate sanitation are the most essential
components for a healthy and prosperous life. The provision of safe drinking
water and adequate sanitation facilities, to the rural and rapidly expanding
urban populations, can reduce mortality rates related to water-borne and water-
related diseases, such as cholera, diarrhoea and malaria.
It is found that there are not enough water planning as lack of water aware-
ness and non-implementation of desired measures which creates difficult-to-
manage situation. With this, there results in freshwater scarcity which already
evident in many parts of India that varies in scale and intensity at different
times of year. Such situation results in natural factors and human actions.
Widespread pollution of surface water and groundwater is degrading the quality
of freshwater resources.
Cause:
The root cause of water related problems in India arises as:
 Uneven Distribution of Water Availability
The availability of water in India carries large variations both in spatial
and temporal. Growing water scarcity in India gauged from fact that
available water per capita per year has decreased from 6008m3 in 1947
to 2384m3 in 2000.
 Water Pollution
Water pollution results in serious dimensions in India with almost 70%
of surface water resources and proportion of groundwater reserves
are contaminated by biological, toxic organic and inorganic pollutants.
Water pollution varies in severity from one region to other depending
on density of urban development, agricultural and industrial practices,
and the systems for collecting and treating wastewater. Most of the
polluted stretches exist in and around large urban areas.
 Excessive Groundwater Exploitation
It is found that large-scale extraction of groundwater lead to overdraft
and a drastic fall in water table in some basins. It creates a disordered
58
situation in water scarce hard-rock regions of southern India, where ENVIRONMENTAL
assured sources of surface irrigation are rare and rainfall is non-uni- ISSUE RELATED
form. However, in Punjab, Rajasthan and Tamil Nadu, large areas fall
TO BUSINESS
under dark category.
 Threat to Biodiversity and Wetlands
About 6.5% and 12.5% of the world?s animal and plant species, re-
spectively, can be found in India. Out of these almost 7,000 are en-
demic to the subcontinent. Unfortunately, habitat destruction in both
freshwater and coastal areas has endangered many endemic species.
Most vulnerable are the freshwater fish since they are more suscep-
tible to water pollution and environmental change.
1. Which among the following is not a root cause of water problems in
India?
a. air pollution
b. water pollution
c. groundwater exploitation
d. all of above
3.5 Industries and Pollution – Air, Water, Noise
Industry results in mixture of companies which operates in related set of
goods or services that are eventually sold to purchasers. In any country,
various industries work together to generate necessary goods and services
required for people. It is found that industries are divided as:
 Primary industries: It uses collection, utilizing and harvesting of re-
sources which are directly produced by physical processes.
 Secondary industries: It manufactures raw materials which are con-
verted into various ways and results in tangible goods.
 Tertiary industries: It generates services for individuals and groups.
The above three industrial groups are distinctive regarding amount of pollu-
tion produced in their operations. It is seen that in certain sectors like tour-
ism, it relates to close relationship with environment, whereas others adopted
proactive environmental response like automobile industry involving recy-
cling of old cars which have impact on environment. As seen, the large im-
pact from pollution is produced in secondary industries.
It is found that pollution initially became persistent problem at the time of
Industrial Revolution. With invention of factory system, substitution of hand
labour by machine labour, application of power to industrial processes, and
use of railroad will help to accelerate pollution problem.
It is analysed that large polluters comes from chemical, pesticide, oil refin-
ing, petrochemical, metal smelting, iron and steel, and food processing in-
dustries. It is predicted that all major users of energy produces large amounts
of waste products and pollution. Apart from these, there are industries hav-
ing less potential impact but are highly problematic to pollution like textile,
leather, paint, plastics, pharmaceutical, paper and pulp industries.
59
NATURAL So pollution is addition to ecosystem of something which determines effect
on it. The important causes of pollution results in high rate of energy usage
ENVIRONMENT
by modern and growing population. There are different kinds of pollution
RESOURCES AND such as:
ENVIRONMENTAL  Air Pollution.
ISSUE  Water Pollution
Air Pollution
Air pollution is present in atmosphere that carries substances in ample con-
centrations which put in danger to human health and effects living matter and
other materials. The main sources of air pollution are:
 power and heat generation
 burning of solid wastes
 industrial processes
 transportation
It is found that there are six major types of air pollutants such as:
 carbon monoxide
 hydrocarbons
 nitrogen oxides
 particulates
 sulfur dioxide
 photochemical oxidants
Water Pollution
Water pollution results in fresh water of chemical, physical, or biological
material which degrades quality of water and affects living organisms. This
results from dissolving or suspending solids to discharge of insidious and
persistent toxic pollutants which can be pesticides, heavy metals, non-de-
gradable, bio- accumulative and chemical compounds.
1. Advertising is an example of:
a. Primary industries
b. Secondary industries
c. oxygen
d. nitrogen oxides
2. Which among the following is not an air pollutant?
a. carbon monoxide
b. hydrocarbons
c. Tertiary industries
d. None of above
3.6 Let Us Sum Up
In this unit, we have learnt that there are certain issues which affect the busi-
ness as laws where businesses changes equipment and procedures so as to
meet the imposed standards which involves much money in business. It is
seen that Greenhouse Gases are trace gases which absorb infrared radiation
60
in atmosphere and are required to sustain life which include carbon dioxide, ENVIRONMENTAL
methane, nitrous oxide and sulphides.
ISSUE RELATED
The Kyoto Protocol is first internationally binding treaty which is based on
TO BUSINESS
lowering emissions of greenhouse gases as signed by 150 nations in Kyoto,
Japan around December 1997 resulting in lower worldwide emissions of
carbon dioxide, methane, nitrous oxide. In view of certain observers, it was
believed that high dependence of most modern industrial transport, agricul-
tural and industrial systems on relative low cost and high availability of oil
causes post-peak production decline.
It is noted that pollution initially became persistent problem during Industrial
Revolution with invent of factory system and application of power processes
with use of railroad. It is of several types as water pollution, air pollution,
land pollution, noise pollution etc.
Answers: (1-a)
Answers: (1-c)
Answers: (1-a)
Answers 4: (1-c), (2-c)
3.8 Glossary
1. Sinks - These are utilization of carbon-absorbing abilities of forests.
3.9 Assignment
1) Explain the history of OPEC and how did OPEC shaped or affected World.
2) Explain the best water management system of any country in the world.
3.10 Activities
Discuss the role of industries in spreading pollution.
3.11 Case Study
Discuss the aim of Kyoto agreement.
1. Jain, S.K., Sharma, A. and Kumar, R. (2004).“ Freshwater and its
management in India.” Intl. J. River Basin Management Vol. 2, No. 3,
pp. 1–12.
2. Chitale, M.A. (1992). Population and water resources of India. Umesh
Communications, Pune, 452 pp.
3. Breach, Ian. (1975). The Living Earth: Pollution. Madrid and Lon-
don: The Danbury Press.
4. Doyle, Jack. (2003). Riding the Dragon: Royal Dutch Shell and the
Fossil Fire. Boston: Environmental Health Fund.
61
NATURAL BLOCK SUMMARY
ENVIRONMENT In this block lot of information about role of industries in spreading pollution
RESOURCES AND along with related concept of various pollutants is detailed. Various sort of
ENVIRONMENTAL renewable and non-renewable resources are discussed along with their im-
pact on business are explained with certain illustrations. For your knowledge
ISSUE
the block highlights various strategies needed for conserving natural resources
and requirement of renewable resources are explained so that you should
know about which sort of resources are favorable for our economic condi-
tions.
The block information is quiet useful for you or related user as it simply
explains about concept of Global warming and Kyoto Protocol which will
lead to lowering of CO2 emission. The block will detailed about information
related to oil crisis exists worldwide and shows its impact with respect to
business economy by considering certain policies and factors.
62
BLOCK ASSIGNMENT
1. Dose typography play an important role in economic development of
an industry?
2. What is pollution? Explain?
3. What is greenhouse effect?
4. What are water crises?
5. Will increase in oil price will affect the economic conditions?
6. Give some examples of non-renewable resources?
1. State Kyoto protocol?
2. Compare between renewable and non-renewable resources?
3. What steps are taken to conserve natural resources?
63
NATURAL Enrolment No.:
ENVIRONMENT 1. How many hours did you need for studying the units ?
RESOURCES AND
Un it N o. 1 2 3
ENVIRONMENTAL
ISSUE Nos of Hr s
of the block:

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64
Dr. Babasaheb
Ambedkar BBAR-301
OpenUniversity
BLOCK-3 INDIAN ECONOMIC ENVIRONMENT AND

GLOBAL DYNAMICS
UNIT 1
INDIAN ECONOMIC ENVIRONMENT PART I
UNIT 2
INDIAN ECONOMIC ENVIRONMENT PART II
UNIT 3
INDIAN MONETARY AND FISCAL POLICY WITH EXCHANGE RATE
UNIT 4
INDIA AND WORLD
INDIAN BLOCK 3 : INDIAN ECONOMIC ENVIRONMENT AND GLOBAL
ECONOMIC DYNAMICS
ENVIRONMENT Block Introduction
AND GLOBAL This block will give the basic idea about the planning in India and what was
DYNAMICS the goal of the Planning in India in different 5 years plans. A small critical
analysis of the planning process and the achievements and failures of the
planning process have been discussed in short. The New NITI Aayog which
replaced planning process in India, small introduction also has been given on
this. Agriculture development in India and Industrial policy discuss the im-
provements Have taken place in India in Agriculture sector and the variables
behind this growth, this also
Discuss the policy matters pertaining to these sectors. Industrial policy dis-
cuss the situation before 1991 and after 1991. The liberalization, privatization
and globalization occurred in the Year 1991 and it’s after effects.
Public sector industries their roles and their problems have been also dis-
cussed. The limitations of public sector and more involvement of private sec-
tor in the Indian economy. The process of Disinvestment and privatization
also have been discussed. This block will give basic ideas and Examples of
disinvestment and privatization.
Block Objective
 To know about the planning process, its success and failures.
 To know about the critical analysis of planning process and NITI Aayog.
 To know about the growth process of agriculture sector and Industrial
policy in India.
 To have some critical analysis of Public sector, basics of Disinvestment
and Privatization
 To know about the basics of money market and capital market.
 To know about the basics of foreign exchange regulations.
 To know about the basics of monetary and fiscal policy.
 To have basic understanding about foreign investments.
 The basic understanding of relations between India and WTO and like
minded countries.
 To know about the basics and role of multinational corporations.
 Indian economic environment Part I
Block Structure
Unit 1: Indian Economic Environment I
Unit 2: Indian Economic Environment II
Unit 3: Indian monetary and fiscal policy with exchange rate.
Unit 4: India and World.
66
Unit
INDIAN ECONOMIC ENVIRONMENT PART-I
1
: UNIT STRUCTURE :
1.0 Learning Objectives.
1.1 Introduction.
1.2 Planning in India.
1.3 Agricultural Development in India.
1.4 Industrial policy in India.
1.5 Disinvestment and privatization in India.
1.6 Let Us Sum up
1.7 Answers for check your progress.
1.8 Glossary.
1.9 Assignments.
1.10 Activities.
1.11 Case Study.
1.12 Further Reading.
 The concept of Planning.
 The concept of Indian Industry.
 The concept of Industrial Agriculture.
 The concept of Public Sector.
 The concept of Disinvestment and Privatization.
1.1 Indian economic environment Part I
Introduction
After Second world war Economic Ideas were mainly divided into two main-
stream thinking one was market oriented economy mainly in western coun-
tries and another was panning system under government mainly followed
and circulated by then USSR. India a new born country in modern world
followed more planning oriented and less market oriented economy. 5 year
planing system was adopted by India and initial industrial base was created
by Government of India in different industrial sectors, in the later years of
90s due to gulf war already fragile Indian economy sank in and India did
1991 reforms and opened up almost all sectors for private and global play-
ers. today public sectors and private sector in many areas are thriving. many
public sector industries became privatively owned through the disinvestment
process. so remember that Disinvestment is a process and privatization is a
result of that process. Besides that The long term growth potential of Indian
economy results in moderately
67
INDIAN positive which arises due to young population, corresponding low depen-
ECONOMIC dency ratio, healthy savings and investment rates which converts increasing
integration into global economy.
ENVIRONMENT
AND GLOBAL 1.2 The Planning in India, Then and now.
DYNAMICS The development of the nation is goal goals with different ways, some coun-
tries followed free market system while some countries like India which were
influenced by the USSR followed the socialist or mix system. Where the main
difference was the questions basically answered by market is answered by the
government as to what produce, how much and for whom. The idea behind
planning system was the market is not ready to distribute the resources so the
government came into the picture. Planning commission was a legislative
commission set by Indian government in March, 1950.
The National Development Council (NDC) was working under the planning
commission, chaired by the Prime Minister of India and included cabinet min-
isters, chief ministers etc. the functions of NDC includes
a) Formulations of the plan and the required resource estimation of the
proposed plan.
b) Improving and reviewing the working style of the planning, increasing
efficiency of the plan etc.
NITI Aayog
The planning commission was replaced by the National Institution for Trans-
forming India (NITI) Aayog on 1st January, 2015.
Functions of NITI Aayog
a) Decide the sectorial priorities for the national development and strate-
gies involving fair participation of states creating a good model of
federalism.
b) Make and execute plans at micro level, e.g. on village level and give it
a priority.
c) Economic areas which are very important and strategic in nature for
the country, attach national security also with them and use it as in
national interest. E.g. doing and curtailing trade with some country on
the basis of the political and security backgrounds. E.g. doing trade
with Pakistan or countries sympathizers with Pakistan etc. This is just
one dimension other dimensions can be as how to deal with friendly
countries like US in trade? Etc.
d) Create an environment which is innovative, supportive for entrepre-
neurs and create a group of like-minded people and organizations for
long term planning and implementations of lessons learnt from those
planning. Collaborate among different departments and different sec-
tors for implementations of different plans of government
Overview
Planning in India was introduced just to make sure that the national resources
must be used properly and efficiently and so the goals of every plans changes
68
as in the first plan the goal was improvement in agricultural sector, in the
INDIAN ECONOMIC
second plan the goal was to make industrial base in the country and there
were other goals also eradicating poverty, social justice, equality etc. People
ENVIRONMENT
known to this planning system criticize for being less efficient in many ways PART-I
and also loud for creating industrial base on which liberal, free and market
economy today depends, because India faced unique and bigger magnitude
of problems which only China may have faced it successfully after 1970s and
80s. If we analyses the export composition of China what China was import-
ing before 1980s that China exported in huge quantities after 1980s to those
countries from which they used to import earlier. E.g. semiconductors.
1. Planning process in India was taken from ________ Country.
a) US, b) Russia, c) UK, d) France.
1.3 Agriculture Development in India
Agriculture sector although reducing its size in the contribution of national
income but its importance is increasing day by day, it is a spine of all the
industrial development. The problem India faced in agricultural sectors were
unique and needed drastic changes. The structure of the agricultural system
needed changes so the first three planes focused on the even distribution of
land among the farmers and eradicating the ownership systems in the agri-
cultural sector propounded by Britishers for their own benefits. E.g. Zamindari,
Raiyatwari etc.
India faced acute shortage of food grains till 1970's., it’s a very famous that
in 1965 war with Pakistan, US threatened India that it will stop the supply of
red wheat if India did more damage to Pakistan or continue the war. This
was possible because US was giving us wheat under PL 480 law passed by
US congress but after 1968 new varieties of seed were introduced and many
other steps were taken to use new technologies which resulted in increase in
food grain production. E.g. agricultural research centers were established,
agriculture universities were formed, new small, medium and big irrigation
projects were launched by government and private entities, new types of
seeds were in used, fertilizers, credit by government and banks were being
given to the farmers. All these things changed the status of India from depen-
dent country on food grains to self-sufficient country or exporting country.
The agriculture growth which was 0.3% before independence grew at the
rate of 2.7% after independence.
How did the expansion happened in agriculture sector? And its externalities.
a) Irrigation: - increase in area under irrigation has directly affected the
productivity but it has also given the boost to the industrial sector.
State and center governments have taken series of initiatives like elec-
trification of village areas which has resulted in increase in use of pump
sets and other electrical equipment meant for farmers, need of steel
and cement and labor for irrigation projects, experts needed for ground
water finding and level restoration also needed which has given exter-
nalities effect to the industrial sector.
69
INDIAN b) New seeds: - the use of hybrid seeds has increased the production in
ECONOMIC food grains and other agricultural goods. These type of high yielding
varieties needs nutrition and higher protection level, this has given an-
ENVIRONMENT
other business to the industry sector for fertilizers and pesticides. The
AND GLOBAL main problem here is the dependence of India in terms of fertilizers is
DYNAMICS not a good sign for the business environment for agriculture and allied
activities. As in 2016-17 Annual agricultural report of Government of
India says that 25% in case of Urea, 90% in case of Phosphates and
100% in case of Potash we are importing from abroad. Government of
India is now encouraging the joint ventures between fertilizer rich coun-
tries and Indian companies, for this India has discussed the possibility
of establishing companies with Algeria, Malaysia and Iran.
c) Help from the institutions: - government of India and state govern-
ments with the help of RBI has made tremendous efforts for credit
expansion in agriculture sector. The chain of Agricultural, regional rural,
primary cooperative commercial banks have been established for this.
NABARD National bank for agriculture and rural development bank
is the epic institution for financial roles which are backed by RBI and
Agricultural and Development Corporation, (ARDC).
d) Agricultural Marketing: - time to time the cost of agriculture activ-
ity is increasing so the support price of the agriculture products is
increasing to support the marginal income for the farmers. The main
agencies which are empowered by the government to decide the sup-
port price adjustment are the cotton corporation of India, the jute cor-
poration of India and the national agricultural cooperative federation
of India (NAFED).
National Agriculture Policy
The agriculture sector is the backbone for all other sector and if all other
sectors have their own policy Agriculture sector also need one. Government
of India announced agriculture policy on 28th of July, 2000. The main take
away are as follows.
a) The main aim is to take the growth rate of agriculture sector to 4% per
annum.
b) The main aspect of the National Agricultural Policy is to encourage
the private sector to invest in contract farming, investment in new tech-
nologies, capital inflows so that efficient agricultural activity can take
place.
c) India is the member of WTO and many countries are in favor of re-
moving the quantitative restrictions on the agriculture goods and India
will have to follow it but India has clarified that it will follow the com-
modity wise strategy.
d) New research will be encouraged in the agricultural field of new seeds
with better higher production and more resistant. The new seeds which
can be specialized for particular region can also be developed and new
ways of doing agricultural. E.g. hydroponics.
70
e) Rural electrification will be done so the various electrical equipment’s
INDIAN ECONOMIC
can be used.
ENVIRONMENT
Summary
PART-I
India has faced problems because of agriculture dependency in the early de-
cades after freedom. Agriculture sector is most important sector of India
although it contributes less in national income and exports but has most of
the working force employed in this sector and all other sectors are based on
agriculture sector. The very famous saying of Napoleon Bonaparte that “there
is no subordinate with empty stomachs”. India has done and achieved many
of the targets in the agriculture sector but still there are some grey areas
where we should concentrate to remain increasingly independent from the
outside pressures in agricultural sector. In the matter of fertilizers 25% of
Urea, 90% Phosphate and 100% Potash is imported as a finished fertilizers
or as a raw materials according to the fertilizer department annual report
2017-18, which must be taken care of. The new methods of organic agricul-
ture must be encouraged to minimize the side effects of the artificial fertiliz-
ers.
1) India became independent in terms of food grains and one of the reason
is _____________.
a) Industrial Revolution.
b) International help.
c) New hybrid seeds.
d) WTO.
1.4 Industrial Policy in India
Introduction
The Industrial Policy is the Policy which determines what country want to
produce with its own industry with available resources, the goals of Indus-
trial policy of every country remains more or less same to become more
industrially superior and get technological advantage in new and future tech-
nologies to reduce cost of production and capture more share in the interna-
tional market, but the way taken by the countries can be different for e.g. the
one way which U.S took was called as capitalism and the another one was
taken by elsewhere USSR was called as socialism. Both are the extreme
ways to become industrial country, another way is to have middle path which
India took in 1991 and now slowly going towards more capital oriented
economy in coming days.
Industrial policies and rules regarding the establishment of new industry or
running already established industries whether they are Indian or foreign ori-
gin determine the opportunities and threats regarding the business and shape
the business environment.
India has seen two different types of Industrial policies and also has seen the
two different business environment, till the year 1991 private industries have
71
INDIAN very limited scope and with many restrictions while government had estab-
ECONOMIC lished industries with the view that basic and some welfare needs cannot be
fulfilled by private industries, so the government industries were given prime
ENVIRONMENT
priorities and private industries were considered as a industries promoting
AND GLOBAL monopoly so the MRTP (Monopolistic and Restrictive Trade Practice) like
DYNAMICS acts were introduced to restrict the scope of private sector and license system
was introduced for establishing new industries.
The year 1991 can be termed as a revolutionary in terms of Industrial direc-
tion. Controls were lifted and economy became more open towards the world
and also changed the whole industrial environment of India.
Features of Industrial Policy before 1991
a) The government was of view that public sector must be the prime
force to determine the distribution of national resources and must have
control over the national supply.
b) The socialistic pattern of Industries were adopted which were basi-
cally emphasized the development of small and heavy industries. This
pattern of developing industries was inspired by USSR (presently Rus-
sia).
c) There were few fields which were reserved only for government in-
dustries such as defense products, atomic power, steel, coal, mineral
oil, mining, aircraft making, railways etc.
d) The entry of new Indian or foreign private industries were strictly re-
stricted, licensing system was introduced and it was mandatory to take
license to establish any new private industry.
e) The flow and the direction of foreign capital was restricted in few
industries only and was governed under the foreign exchanged Regula-
tion Act (FERA), 1973.
Features of Industrial Policy after 1991
The year 1991 was very critical for Indian economy and business environ-
ment, as Gulf war increased the cost of Oil imports and Indian economy was
in grave Balance of Payment Crises. This forced the Indian Government to
do major policy reforms in Indian economy as well as in Industrial Policy.
Today in those strategic industries where private sector was not allowed,
many private firms are working and providing support to the government
sector, for e.g. Besides DRDO Indian premier defense research organization
there are other private players now like Godrej, L&T, Bharat Forge etc. which
are today the part of defense manufacturing eco system. Same way ISRO is
the premier research and manufacturing organization for space application in
India but there are many firms ranging small to big in size contributing. There
are many such example of synergy between government and private entities.
Some of the feature of new Industrial Policy are:
a) Gain more from what public sector has already made in India but with-
out its weaknesses, redefine the role of public sector and reduce it and
let private sector have some place with them.
72
b) Government removed the enormous control and licensing from pri-
INDIAN ECONOMIC
vate sector also laws like MRTP and introduced the competition act in
2002.
ENVIRONMENT
PART-I
c) FDI and FIIs are allowed now with much relaxed terms and condi-
tions, in many sector 100% FDI has been permitted for which means
foreign company can have 100% holder of its own shares and also
profit. In many highly sensitive technological fields may have 100%
FDI on case to case basis if it benefits India.
d) FERA (Foreign Exchange Regulation Act) has been removed and in-
stead FEMA (Foreign Exchange Management Act) has been intro-
duced.
More policy changes are happening as the government sees a new business
environment. For e.g. private companies were not allowed to export defense
equipment but now many private firms are supplying different types of equip-
ment to the various nations. Further policy changes also needed to reduce
the red tapes, various departmental permissions and lengthy procedure to
make India more industrial oriented country, we can take example of China
for reducing procedural issues.
1) In the year 1991 India faced BOP (Balance of Payment Crises, the
immediate reason was______________________.
a) Gulf war.
b) Less liquidity.
c) Higher price of oil.
d) A and C both.
1.5 Disinvestment and Privatization in India
Disinvestment is the process which reduces the government ownership from
the various industries and privatization is the result of this process. Indian
government’s huge investment in public sector resulted in inefficiency, lack
of vision for future technologies, stagnation, Reluctance to adopt new ways
of production, no real competitors in the market, reservation of the selected
industries only for government PSUs. This resulted in huge burden and large
deficits in many countries and also in India. This led to the Indian govern-
ment to do public sector reforms and shifts ownerships of many government
industries partially or fully to the private sector step by step.
What are the ways to do privatization?
a) Through the sale of equity of PSUs to the private sector or the em-
ployees of the same company.
b) Denationalization of the earlier nationalized entities.
c) Government can outsource the goods and services required by con-
tracting the private companies and give off government companies.
d) Allowing private sector in some fields where government thinks it
should keep out of the market.
73
INDIAN e) Privatization can also be done by privatization of management.
ECONOMIC f) Government can also do privatization by liquidize the government as-
ENVIRONMENT sets and closer of the entity.
AND GLOBAL What can be the problems in the path of Privatization?
DYNAMICS a) Government mostly sells the most inefficient firms but keeps price higher
which is unacceptable to the private players.
b) Many times opposition, trade unions and government employees try to
stop the process of disinvestment and privatization in the fear of losing
jobs or other advantages.
Preconditions for the successful privatization
a) The process of disinvestment and privatization succeed only in two
conditions, if government supports this process because of worsening
economic conditions or when the business and economic environment
supports privatization.
b) The process of disinvestment and the privatization must take care of
distribution of government firms. It should not go in the concentrate
hands of private players but it must diversify the ownership as much as
possible.
c) The process and the rules and regulations must be simple and easy for
the stockholders, it should not discourage them by overregulating the
industry.
d) The private players or the purchasers of the government firms must be
given the specific goals to be fulfilled, for e.g. if government has
outsourced the services then the services must be provided as per the
requirements and set standards.
e) Consumer must have more benefit from the system change that means
consumer must have more choices with cheaper rates and with good
competition in the market from the seller’s side. This gives consumer
an i9dea of consumerism and the ability to purchase wisely.
f) Sometimes ownership transfer to employees gives more benefits so
government must see that all the firms which government want to con-
vert fully or partially should not fall into some people’s hand it should
be done by decentralized way which give more benefits and does not
concentrate all income sources into few hands.
Benefits of decentralization process and Privatization?
a) Government fill the losses done by government owned firms, which
converts into fiscal burden of the government while disinvestment takes
out this burden.
b) Reduces the administrative burden of the government which allow
government to see other welfare areas for the people.
c) Private sector is mainly based on innovation and efficiency with diver-
sity which gives benefits to the economy and consumers.
d) It gives boost to new ideas and start-ups which are also possible in
74
government sector firms but in private sector it rises more than gov-
INDIAN ECONOMIC
ernment sector. For e.g. in US there is a department called DARPA
which see the production of new weapon systems of US and it distrib-
ENVIRONMENT
utes contracts to the private sectors and seen much success while same PART-I
way India experience of DRDO, HAL remain mix but now many pri-
vate sector firms are joining this sector and contributing for DRDO
and HAL and ISRO.
Cautious words for doing privatization.
a) Private sector runs predominantly for profit and does not like to per-
form on less profit margin, while many of the government firm’s exis-
tential motto remains the welfare of the society, which can come un-
der attack if the privatization is done in these fields. So government
should do disinvestment and privatization by keeping in mind the wel-
fare of society.
b) The size of government firms are usually enormous and the scale of
production mostly remain higher and if the some private players get
hands on these firms which can make private monopoly power and
hurt the consumer’s interest.
c) In the past history some of the profit making government entities which
converted or sold partially or fully to the private sector were profit
making firms. E.g. VSNL, Balco etc.
Many time when a government firm converted into private or the manage-
ment shifts take place it is done in a way that it does not become a successful
ownership transformation, this intentional ill transformation of ownership
should not be done.
1) Privatization is ___________ and disinvestment is _______________.
a) Process, result b) Result, process.
2) Government should not do privatization of industries which ______.
a) Loss making. b) Strategic c) Small industries. d) Profit making.
1.6 Let Us Sum Up
This unit explains about the planning era of India which was the result of the
USSR (Today’s Russia), India adopted mix system with planning process.
Today the same planning processes removed and NITI Aayog has been in-
troduced with the same function with innovative way. This unit also explains
how agriculture sector was in the initial years of India and what problems we
faced before agriculture revolution 1968-69? Today’s condition of agricul-
ture sector has also been discussed the goal of achieving 4% agriculture
growth is still in the table today. Industrial policy before 1991 and after 1991
the big shift has also been discussed with few examples, many of new acts
have been introduced and old were replaced as MRTP and FERA were re-
place with competition act 2002 and FEMA respectively. One should under-
75
INDIAN stand the meaning of Disinvestment and Privatization as disinvestment is pro-
ECONOMIC cess and privatization is a result of that process. Government should not dpo
the privatization of profit making industries and if needed can and currently
ENVIRONMENT
doing privatization of or PPP model for strategic industries with private sec-
AND GLOBAL tors.
DYNAMICS
1.7 Check Your Progress Answers
Answers: 1- (b)
Answers: 1 - (c)
Answers: 1 - (d)
Answers: 1- (b), 1-(d)
1.8 Glossary
Disinvestment and Privatization: Disinvestment is a process, in which gov-
ernment firm’s ownership is shifted into private firm, partially or fully and
when this process is completed then it will be said Privatization to that extent.
DARPA: - American agency (Defense Advanced Research Projects Agency)
equivalent to India’s DRDO.
1.9 Assignment
Do the critical analysis of Success and failures of Planning Process.
1.10 Activities
Search the pattern of success or failure of Public sectors in the different coun-
tries.
1.11 Case Study
Read the disintegration process of the USSR. (Today the biggest remaining
part is Russia).
Read the Development of Agriculture in Israel. How do they do it?
1.12 Further Reading and Bibliography
Indian Economy by sanjiv Verma, 2019-20 ed.
Political Economy of Reforms in India (Oxford India Short introductions) by
Rahul mukheraji.
Political Economy of Contemporary India by R. Nagaraj and Sripad Motiram
Economic Development and Planning in India by V. Nath.
Agriculture & Rural Development in India since 1947 by Chandra Sekhar
Prasad.
India: Industrialization in a Reforming Economy: Essays for K L Krishna by
Suresh D. Tendulkar (Author), Arup Mitra (Author, Editor), K.
Narayanan (Author, Editor), Deb Kusum Das (Author, Editor), S.D.
Tendulkar (Editor).
76
Unit
INDIAN ECONOMIC ENVIRONMENT PART II
2
: UNIT STRUCTURE :
2.1 Competition policy
2.2 Price and Distribution Control
2.3 Patents and Trade Marks.
2.4 Demographic Features.
2.5 Labor Legislation in India.
2.6 Unemployment in India.
2.7 Let Us Sum Up
2.9 Glossary
2.10 Assignment
2.11 Activities
2.12 Case Study
 Concept of competition policy in India
 Concept of Patents and Trademarks.
 Concept of Demographic features with unemployment and inequality.
 Basics of Labor Legislation.
2.1 Competition Policy in India
There are three famous economic systems. 1) Capitalism 2) Socialism 3)
Mix economy. Indian initially followed socialism closely till 1990 and then
moved towards the more liberalization and privatization, before that MRTP
law was laid down by Indian government which was very controversial be-
cause of its restrictions imposed on domestic as well as international compa-
nies. The basic idea behind this policy was that private forms are monopoly
makers so Government of India must not allow to concentrate economic
power in few companies or people’s hand, but this MRTP law had more grey
areas so in 2002, Indian government laid down a competition policy which
promotes the healthy competition among the firms and also does not allow
to establish monopoly.
A competition policy and law is the set of guidelines which will be enforced
by the government to affect the behavior and structure of the industries and
the way of working in the market with government and consumers. For e.g.
77
INDIAN Government under competition policy will not allow unfair competition forc-
ECONOMIC ing small firms with unfair practices, collusion and cartel making by acquisi-
tions or mergers etc.
ENVIRONMENT
Objectives of the competition policy
AND GLOBAL
DYNAMICS a) Efficient allocation of resources with quality management at lower price
and sufficient supplies.
b) To see that firms should not use their prime position in the market to
shape less competition and should not allowed to form horizontal agree-
ments (among firms) or vertical agreements, increasing the number of
joint ventures which will kill the probability of evolution of any single
or more dominant firms in the market.
c) Horizontal restraints includes making price collusion agreements, cre-
ating artificial scarcity, sharing market to dissuade others from enter-
ing into market etc.
d) Vertical restraints includes stopping firms from supply other firms, same
behavior with distributors, selling somebody with conditions like sell-
ing on higher or lower price, selling in particular territory, price dis-
criminations to different parties etc.
Structure of competition commission structure
The competition commission of India (CCI), which comes under the compe-
tition act has a chairperson and six members, which decides about the poli-
cies pertaining to the competition. Competition commission was established
on 1st march 2009 with the objective of removal of adverse effects of any
malpractices affecting adversely to the competition, protection of the inter-
ests of consumers and free trade.
Exemptions in the law of free trade
The matters which are related with national security and defense produc-
tions, maintaining of state secrets in the interests of national security, also
when it is matter of public welfare firms can be given exempted from compe-
tition law.
The foreign policy is also shaping the trade relations of India with the rest of
the world, any bilateral agreements between India and any other nation may
make such type of firms or joint ventures which makes situations like mo-
nopoly.
There are few functions of government which can only be done with the
production done by government firms or the firms comes under the agree-
ments with government will have exemptions allowed by government.
1) In new competition policy _______________ is not allowed.
a) Inefficiency b) making cartel c) artificial scarcity d) both b and c.
2.2 Price and Distribution Controls
Price and distribution controls usually applied when in any country has less
supply of necessary goods or other goods, large population living under very
78
low level of income and does not able to even afford the basic goods, this
INDIAN ECONOMIC
situation trigger price and distribution control by the government for the
welfare of the people.
ENVIRONMENT
PART II
Objectives of price and distribution controls
a) A weaker section of the society must get the satisfactory level of con-
sumption of goods and service, distribution and price biased policies
for those weaker section and also balancing and taking care of infla-
tion and artificial scarcity.
b) A state has to see the standard and the quality of the goods, the essen-
tial commodity act 1955 makes sure that the quality must be pre-
served.
c) To ensure that uninterrupted supply of consumer’s goods should reach
to the consumer as well as industrial input to the core industries with
reasonable price.
d) To control the inflation and deflation in the country.
Indian Price Policy
The main aim of Indian pricing policy is to insure the prices of the goods
must remain under the buying power of most of the Indian society and must
not be allowed to increase beyond a certain limit, to fulfil this goal govern-
ment of India has different options which are: - 1) Indirect control 2) Direct
control.
1) Indirect controls: - Indirect controls are exercised with the help of
monetary policy, fiscal policy and the foreign trade policy.
a) Monetary policy is the policy to control the liquidity in the market
with various financial instruments used by the central bank of any coun-
try and in case of India it is Reserve Bank of India. The expansionary
monetary policy and Contractionary monetary policy affects the prices
of goods and services and in turn affects the demand and supply chain
of goods and services, So when the prices are higher, Contractionary
monetary policy is applied and rate of interest of different banks shoot
up, demand for money goes down and demand for goods and services
also reduces and so the price, but this approach is not all in one medi-
cine, selective credit control also applied to give credit on selective
basis more rate of interest for speculative purposes and less rate of
interest for productive manufacturing and demand.
b) Fiscal policy is the policy which deals about Tax and public expendi-
tures. The fiscal policy can also be divided into expansionary and
Contractionary policy by nature. When the prices become higher and
continuously increasing further then Contractionary fiscal policy is
applied by the Government of India. Contractionary policy increases
the taxes weather it is direct or indirect and expenditure of govern-
ment on public projects go down as per the priority which in turn
reduces the money flow from the government to the public and re-
duces the capability of purchasing extra and this reduces the demand
79
INDIAN and so the price. Expansionary monetary policy applied mostly when
ECONOMIC economic growth is slow and showing signs of further decline. Gov-
ernment through various tax reductions to the export and import in-
ENVIRONMENT
dustries, tax reduction in direct and indirect taxes based on nature of
AND GLOBAL goods makes goods bit cheaper and this induces people to purchase
DYNAMICS goods so the cycle of the economy runs. Public expenditures also in-
creases particularly in such type of period on various productive pub-
lic projects so the income of people associated with such projects can
be increased and that keep up demand and runs the economy, in short
in such times government wants the people must have money and goods
to buy from the market.
c) The trade policy is also used to stabilize and to change prices of goods
and services internally and sometime externally also. In India govern-
ment regulates the import and export of agriculture and non-agricul-
ture goods to adjust price internally. For e.g. from September 2019
government of India has prohibited export of onion in the foreign mar-
ket. Same way when China closed the supply of rare earth materials to
Japan, India sent rare earth materials to japan.
2) Direct control: - government has number of systems and instruments
to act on balancing price and distribution control to avoid any sudden
price escalation.
a) Administered prices: - a price policy which does not reflects the de-
mand and supply because it is administered and set by government.
Earlier in India many important goods like cement, steel, coal etc. had
been administered by the government but the administered pricing in
India has been failed miserably because of short supply and black mar-
keting in past and also the source of generating black money through
corruption in government departments.
b) Dual pricing: - the dual pricing is a price system where government
purchases some proportion of their output with little lower price than
the market price and remaining output can be sold by the same indus-
try in the open market with prevailing prices. The idea behind this
system is the portion of output purchased by the government will help
to the weaker section of the India while the industry will recover their
profits by selling remaining output in the open market on higher mar-
ket prices but in India because of this system sometimes prices in the
open market increases enormously.
c) Public distribution system (The ration shop): - this is price system even
before the freedom of India but after freedom Indian faced the acute
shortage of food grains.
India was importing red wheat from US under PL 480 law, after t5his gov-
ernment started PDS system and made it a largest of its kind of system in
which government purchases directly from the producers at a prevailing or
support price and give that essential goods to the weaker section of the soci-
ety. The Indian government has issues special cards to the families under BPL
80
line to get essential food and other supplies on a very lower price this is also
INDIAN ECONOMIC
called Targeted Public Distribution System (TPDS). The PDS system has
also been criticized by the Comptroller and auditor General of India (CAG)
ENVIRONMENT
on many grounds, CAG has identified that many BPL families have not been PART II
give the ration card, many times prices have taken higher than the prescribed
prices, higher operation cost for the government, non-cooperation from the
state governments etc.
1) Monetary policy is mainly to control___________.
A) Flow of income.
B) Flow of liquidity.
C) Flow of foreign exchange.
D) Flow of taxes.
2.3 Patents and Trademarks
Intellectual property rights can be defined as “an information which has a
commercial value”. These property rights have some characteristics that ac-
tual owner of that intellectual property if do not want to give full access, do
not want that other know how it is made, how it works, and want to maintain
the secrets of that intellectual property.
These days there are many types of properties and intellectual property rights
are one of them and every country want to protect their intellectual property
rights. The need of having new technologies are necessary for countries for
many types of requirement. E.g. China’s Gili Company has made many cop-
ies of western standard cars and have sold in foreign market, bikes of Bajaj
companies have also been copied in the China, the copies of Mig-21 and
many other Russian fighter planes. This is also called reverse engineering.
The biggest success of the concept of reverse engineering is the mobile in-
dustry of China which initially did try to make copies of western mobile
phones but failed and made very low grade mobiles but slowly they advanced
into reverse engineering and now they are competing with top most western
and south East Asian country’s companies. These all examples prove that
now countries will guard their intellectual property rights more zealously.
Intellectual property rights have many type in the form of patents, copy-
rights, industrial design, geographical indications and trademarks.
Patents
A patents is the acceptance and the legal authentication to the inventor of his
own invention which is new and cannot be done by an average person and
useful, commercially or any other way to sell and make exclusively and can’t
be made by others. In India patent protection was started in 18th century and
formally in 1911 the act was passed. India is a member of WTO and so it has
to change patent laws according to the set standards of WTO.
The Indian patent Act 1970 explains the eligibility, procedure and conditions
for having patents, why on some goods or practices no one can take patents,
81
INDIAN rights and responsibilities of patent holders, removal of patents and the rights
ECONOMIC of government on patents in different situations.
ENVIRONMENT Brands and Trade Marks
AND GLOBAL Today people prefer to be an owners of some particular brands of goods and
DYNAMICS services, which gives them satisfaction of using high value goods and ser-
vices. Trademarks are the distinguish tool which makes on brand differ from
other brand. Seeing today’s world the brand value or name also possess high
value till the company or goods or services are ranked and assumed to be top
of the lines as per their users.
The definition of brand by American marketing association says “a brand is
the name, term, sign, symbol, or design or a combination of them, intended to
notify the goods or services of one seller or group of sellers and to differen-
tiate them from those of competitors.
Need to rectify definition says “A trade mark is a brand or part of a brand that
is even a legal protection because it is capable of exclusive appropriation. A
trade mark protects the seller’s exclusive rights to use the brand name and /or
brand mark.”
India has a trade marks law 1999 act which has basic objective of the regis-
tration and better protection of trade marks for goods and services and stop-
ping copying and use of false trademarks. In India central government ap-
points the controller general of patents, designs and trademarks registers the
patents, trademarks.
Any person can apply for the trade mark in the office of registrar of patents
and trademarks. Registrar of trademarks and patents accepts the application
and put the advertisement for the people so if anybody has any problems with
the prescribed trademarks, they can counter apply for the same within 2 months
and if not opposed the trademarks is granted to the applicant. The applicant
must complete the procedure within 12 months after that the application will
be considered cancel.
The applicant can also claim some part of the trademark part or design as for
exclusive use. The application will be cancelled if it hurts the religious senti-
ments of communities or it was always there means it is customary.The ap-
pellate board has been created by the central government for solution of dis-
putes related to trademarks and patents.
Summary
As this subject is gaining more and more momentum there are some concern
also related to patents and trademarks. There are many customary practices
in India which are continue since ages. E.g. the use of Neem and Haldi (tur-
meric) is considered as most useful things for home remedies which have
become the issues when countries like US try to take patent. It can seriously
affect the Indian pharmaceutical industry and home industries.
82
INDIAN ECONOMIC
1) Intellectual property rights can be termed as _______________. ENVIRONMENT
a) A new information. PART II
b) Information with legal rights.
c) Information with financial values.
d) both b and c.
2) Patent is given to an innovation which fulfills _______________ Con-
dition.
a) It must be new.
b) It can be made by others.
c) It must not be ordinary thing
d) it could reverse engineered
e) both a and c.
2.4 Demographic Features.
The spatial variations in the distribution, density, composition, sex-ratio, lit-
eracy rate, migration, and growth of population have a direct bearing on the
utilization of resources and the levels of development of a region/country. It
is, therefore, an important concern of geographers. The distribution, density,
composition, growth, and migration of population are directly or indirectly
controlled by physical, socio-cultural, economic, and political factors. India
has only about 2.4% of total area of world but supports over 17.71% of
world population in 2019.
Demographic transition is the transition from a stable population with high
mortality and fertility to stable population with low mortality and fertility.
During the transition population growth and changes in the age structure of
the population are inevitable. In India, the demographic transition has been
relatively slow but steady. As a result the country was able to avoid adverse
effects of too rapid changes in the number and age structure of the popula-
tion on social and economic development. Growth of population is the rate
in the number of people living in a particular area between two given points
of time. The net change between the two points of time is expressed in per-
cent-age and is described as the growth rate of population.
As stated, India is second largest population in world after China. The popu-
lation of India was 1369 million in 2019. It is growing at a faster pace. On an
average, Indian population is being increasing at a growth rate of over 1.08%
(2019) per annum as against 1.14% (2019) for world as a whole and 0.59%
(2019) for China.
Population 1,370,755,899.
Age structure 0-14 years: 26.2% (2020 estimates)
15-24 years: 18%.
25-54 years: 41.4%.
55-64 years: 7.8%.
83
INDIAN 65 years and over: 6.6%
ECONOMIC Dependency ratios
ENVIRONMENT Total dependency ratio: 49.8% (2018).
AND GLOBAL Youth dependency ratio: 38.9 %. (Old estimates)
DYNAMICS Elderly dependency ratio: 9.8 %
Potential support ratio: 10.23
Median age total: 27 years Male: 26.4 years Female: 27.7 years
Population
Growth rate 1.02%
Birth rate 17.80 births/1,000 population Death rate 7.27
deaths/1,000 population
Net migration
Rate -0.383 migrant(s)/1,000 populations
Literacy definition: age 15 and over can read and write To-
tal population: 62.8%
Male: 75.2%
Female: 50.8%
Sex ratio at birth: 1.08 male(s)/female
0-14 years: 1.13 male(s)/female
65 years and over: 0.91 male(s) female Total population: 1.08 male(s) female
Mother’s mean
Age at first birth 19.9
Infant mortality
Rate total: 43.19 deaths/1,000 live births Male: 41.9
deaths/1,000 live births Female: 44.63 deaths/1,000
live births
Life expectancy
At Birth total population: 67.8 Male: 66.68 years
Female: 69.06 years
Total fertility rate 2.51 children born/woman Drinking water
Source improved: urban: 96.7% of population
Rural: 90.7% of population Total: 92.6% of popu-
lation
Unimproved: Urban: 3.3% of population Rural: 9.3% of popula-
tion Total: 7.4% of population
84
Sanitation facility Accefor for
INDIAN ECONOMIC
percentage : 98.9% of population. ENVIRONMENT
Population: PART II
2.5 Labor Legislation in India
The growth of China tells many stories but also stories related to Labors.
The initial low level laws of China and strict bondage type of working areas,
many special economic zones run by jailed prisoners kept low cost and west-
ern countries were seeing more competition as eastern countries were com-
ing close to the western systems and technologies and needed markets where
labor cost must remain low to have cheaper production and more consump-
tion. As the countries get confidence on their labours they start to protect
more and more and make stricter laws to protect their labours. The whole
story is how much more productive is your labours and in what quantities?
So the labour environment is also important and especially in democratic
countries. In India directive principles of Indian constitution has put much
more responsibility on the shoulders of state to protect and give employment
to the labours who want to work. The labour legislations in India are impor-
tant to determine the working hours, living conditions, their social orienta-
tion towards the mainstreamed, removal of bondage labour system, how and
when to hire and fire the labours etc.
The ILO (International Labour Organisation) defines the rights of worker
which Indian also has accepted.
a) Right to work of own choice.
b) Right against any type of discrimination.
c) Ban on Child labours.
d) Need of suitable work condition.
e) Protection of wages.
f) To create organisations like labour unions.
g) Right to participate in management.
Classification of Labour legislation
a) Laws related to Children and women which does not allow to keep
children under the age of 18 and directs that all hazardous occupa-
tions and others also cannot employ children accept the family busi-
ness.
b) Laws related to specific industries classifies that labours working for
factories and workshops should get better conditions to work, pre-
vention of cheating and extra advantage of labours. The laws related
to the workers of Mines and Minerals are more focussed on the safety
of labours, their wage, health hazards etc. the laws related to planta-
tion and transport and other industries are generally more concern
about the working conditions of the labours and their wages.
85
INDIAN There is a big unorganised sector in India where labours can’t make their
ECONOMIC voices loud and clear to the law makers. Government has envisaged laws also
for them as minimum wage act, compensation act, employment and condi-
ENVIRONMENT
tions of service act. Etc.
AND GLOBAL
Summary
DYNAMICS
The labour legislations are important toll to safeguard the working condi-
tions, wage rights and the standard of life of different types of labours in
different industries. The lower wage and relaxed laws of course make the
country a hot spot for other countries to do more investment but that causes
harm to the upcoming generations.
2.6 Unemployment in India
Unemployment in India: Types, Measurement and Causes!
Unemployment can be defined as “is a state of affair when a person want to
do the job and is fulfilling the suitable requirements for the job, still does not
get the job”.
Types of Unemployment in India.
Disguised Unemployment:
This is a unique type of situation where people seems working but their Mar-
ginal contribution remains zero. This means if we take out those people there
will be no effect on the total production. This type of unemployment in India
mostly seen in Agriculture sector or family business where people tend to
work in family farms which may be small in terms is size. The lack of other
means of employments or rigidity in terms of migration from one place to
other place may be the reason of this types of unemployment. As India will
more forward from highly agrarian country to the more industrial country,
this type of unemployment will reduce and Indian economy will be prone to
new type of unemployment related to the sector which is more contributing
in the economy.
Seasonal Unemployment
This is a type of unemployment which occurs due to the change in the con-
sumption of particular goods and services and that also depends on the sea-
sons in they tend to use more or less. The seasons are the defining factor in
the selling of these goods and services, so when the season is in peek the
demand of that goods and services will be higher so as the employability and
vice versa.
4. Cyclical Unemployment:
The business cycle is the main reason of this type of unemployment. The
business cycle shows the degree of business activity. The business activity has
four stages which can be said as the stages of business cycle which are expan-
sion, peak, and contraction and through. In the old ages the unemployment
mostly was connected to agricultural sector because almost all the popula-
tion was engaged in the same sector but after industrial revolution and World
War II, and WTO new dimensions of cyclical unemployment have emerged,
now there are many reasons of cyclical unemployment as recession in an
86
economically strong country, export oriented economy, political relations,
INDIAN ECONOMIC
financial mismanagement etc.
ENVIRONMENT
5. Educated Unemployment:
PART II
Educated unemployment is a phenomenon when the desired qualification
does not match with the current qualification and people does not get ab-
sorbed in the market. The common reason can be the bad economic condi-
tion of concerned country besides less practical education system, absence
of technical education, lack of desired skills even after achieving the desired
skills etc.
6. Technological Unemployment:
Technical unemployment is a mix reason of excessive use of capital intensive
technologies and not acquiring new skills needed to market. The cost reduc-
tion aim of companies as well as any production facility opt more machine
than man which creates more inequalities also.
7. Structural Unemployment:
Changing stricture of any country’s economy also creates opportunities as
well as some drawbacks and structural unemployment is one of them. When
Indian economy after 1980s and majorly after 1991 shifted towards more
market oriented economy the structure of Indian economy has changed much
more, use of computers and modern devices have been observed everywhere
in every scale of work, automatisation is spreading everywhere causing many
changes in economy as well as employing less people and shading more people
in the market.
Summary: - unemployment is a problem of every country except very small
prosperous countries. We can divide countries on the basis of their economic
development and life standard as 1) Developed nations 2) Developing na-
tions 3) underdeveloped nations. All these three types of countries have dif-
ferent reasons of unemployment. Mostly in developed nations short term,
technological, cyclical or frictional short terms unemployment is seen in de-
veloping countries structural and technological, educational, cyclical and
Disguised unemployment is common same with the underdeveloped nations.
The big difference is developed nations and bigger developing nations can
help themselves, can handle the effects of unemployment because the popu-
lation of these countries have higher set of skills and can adopt new skills
easily.
1) Agriculture sector in India faces _____________ unemployment.
b) Structural. b) Frictional c) disguised d) above all.
2.7 Let Us Sum Up
There was a major shift in the nature of Indian government regarding how
economic activities conducted should and the structure of ownership? The
major change was LPG policy and competition policy initiatives and aboli-
tion of MRTP act with sole objectives of increasing competition and provid-
87
INDIAN ing more options to the consumers but there were some government systems
ECONOMIC which were continued to support the lower income people like PDS and
price controls to provide them basic food grains at very low price. Patents
ENVIRONMENT
and trademarks are the important aspects of IPR management which encour-
AND GLOBAL ages people to do new ingestions and provides property rights over those
DYNAMICS IPRs. This unit also gives the slight idea of labor legislation of India and some
aspects and examples of the countries with international understanding. This
unit also contains the information about unemployment in India.
1) a. (Inefficiency)
1) b. (Flow of liquidity)
1) d (both b and c)
2) e (both a and c)
1) c. (Disguised)
2.9 Glossary
1. Developed Nations: - A nation which has identified the most possible
resources and now doing optimization of all possible resources is called
developed nation. Such nation’s population has high set of skills and
have higher facilities and educational system in terms of research and
development.
2. Developing and underdeveloped Nations: - these types of nations are
doing structural changes as well as growth also. These nations are still
refining their resources and searching new ways for more develop-
ment while continuously doing optimization of resources. E.g. India
has population which has higher set of skills and very low set of skills,
still India needs structural changes in terms of education, economic
reforms, modern systems and research and development while US has
higher literacy rate, superior infrastructure while India still working in
these sectors even in terms of cleanliness. So this clears that develop-
ing and underdeveloped nations are still changing basic infrastructure
while developed nations are above all these changes.
2.10 Assignment
What is patents and trademarks?
2.11 Activities
Write a short note on how unemployment of Developed nations is different
from Developing and Under-Developed nations.
88
2.12 Case Study INDIAN ECONOMIC
Discuss how reforms of 1991 and competition policy has changed India? ENVIRONMENT
Study the 1930 Great Depression in US. PART II
2.13 Further Readings and Bibliography
1) Competition Law in India: Policy, Issues and developments by T.
Ramappa. Oxford University Press. 2014.
2) Economic Reforms in China and India: Development Experience in a
Comparative Perspective by Joseph C.H. Chai and Kartik C. Roy.
Edward Elgar Publications.2006.
3) Indian Economy: Performance and Policies by Uma Kapila. Acedemic
Foundation. 2011.
4) The Indian Economy Problems and Perspective. Edited by Bimal Jalan.
Penguin Books. 2004.
89
INDIAN
ECONOMIC Unit INDIAN MONETARY AND FISCAL
ENVIRONMENT 3 POLICY WITH EXCHANGE RATE
AND GLOBAL
DYNAMICS : UNIT STRUCTURE :
3.0 Learning Objectives.
3.1 Introduction.
3.2 Money market and Capital market.
3.3 Foreign exchange regulation.
3.4 Monetary policy.
3.5 Fiscal policy.
3.6 Let Us Sum Up
3.7 Answers for check your progress.
3.8 Glossary.
3.9 Assignments.
3.10 Activities.
3.11 Case Study.
3.12 Further Reading.
 The concept of money market and capital market.
 The concept of Foreign exchange regulation.
 The concept of monetary policy.
 The concept of Fiscal policy.
3.1 Introduction
The Indian money and capital market is a place where short term and long
term funds are borrowed and lent. These both well developed markets helps
economic growth by lending and borrowing funds to the producers and many
other stakeholders. These markets are also important for consumptions of
more goods and services and even manufacturing of these goods and ser-
vices. Organized and unorganized both sector contributes for and of these
markets.
Foreign exchange regulation is important aspect for a country as this regu-
lates the demand and supply of the foreign funds and channelize them into the
priority sector for the country especially if the country is in a developing
stage. India also initially remain strict in terms of foreign currency and later
when adopted liberal policies strict regulations became soft management cur-
rency system which has increased the foreign reserves of India.
Monetary and fiscal policies are the common in all countries with different
nature. These are the policies to control the flow of money, Tax and public
90
expenditure as per the need of economic conditions of the country and gives
INDIAN MON-
way for more development.
ETARY AND FISCAL
3.2 Money Market and Capital Market
POLICY WITH
Money Market
EXCHANGE RATE
Money Market is a credit market where short-term funds are borrowed and
lent. This contains borrowers and lenders of short-term funds where bor-
rowers are normally:
a. Merchants
b. Traders
c. Brokers
d. Manufacturers
e. Speculators
f. Government
It is found that lenders are:
a. Commercial banks
b. Insurance companies
c. Finance companies
d. Central bank
The money market brings together the lenders and the borrowers which does
not deal in cash or money but deals with trade bills, promissory notes and
government papers or bills for limited period.
Functions of Money Market
It is seen that a well-organized and developed money market will help coun-
try in getting economic growth and stability which performs diversity of func-
tions in terms of banking structure of economy, which are:
(a) Money market shows commercial banks, non-banking financial con-
cerns, business corporations and several investors for short-term funds
that makes them to use extra reserves in investment.
(b) Money market shows short-term funds to businessmen, industrialists,
traders so as to meet daily needs of working capital.
(c) Money market shows short-term funds not to private businessmen but
also to government and its related agencies.
(d) Money market makes businessmen with extra funds so as to invest it
for short period.
(e) Money market shows medium by which, central bank of country exer-
cises control on creation of credit.
(f) Money market serves as great help to government.
Characteristics of Indian Money Market
It is noted that an Indian money market is an under-developed money market
which is loosely organized and suffers from several hindrances and is divided
into two parts:
91
INDIAN a. Organized sector
ECONOMIC b. Unorganized sectors
ENVIRONMENT It has certain important characteristics such as:
AND GLOBAL (a) It does not possess highly organized banking system which is required
DYNAMICS for successful working of money market.
(b) It does not have adequate and continuous supply of short-term assets
which includes bills of exchange, treasury bills or short-term govern-
ment bonds etc.
(c) There exists no dealer in short-term assets which acts as intermediaries
that exists among government and banking system.
(d) It does not contain essential sub-markets like acceptance
market, commercial bill market etc.
(e) It is noted that there exists no proper co-ordination among different
sections of the money market as inter-connection among different sec-
tions of money market often loses and un-co-ordinated.
(f) Indian monetary and fiscal policy with exchange rate.
There results no uniformity among interest rates that varies consider-
ably among certain financial institutions as well as centers. Money-
lenders especially charge exorbitant rates of interest.
(g) The Indian money market does not attract foreign funds as the London
money market does. Thus, the Indian money market lacks interna-
tional status.
(h) The Reserve Bank does not possess adequate capacity and power to
influence and control the entire money market. It has no adequate con-
trol over the policies and functioning of the unorganized part of the
money market.
Capital Market
The term “Capital Market” is used to describe the institutional arrangements
for facilitating the borrowing and lending of long-term funds. Usually, stress
is laid on the markets for long-term debt and equity claims, government secu-
rities, bonds, mortgages, and other instruments of long-term debts. Thus, the
capital market embraces the system through which the public takes up long-
term securities, either directly or through intermediaries. It consists of a se-
ries of channels through which the savings of the community are mobilized
and made available to the entrepreneurs for undertaking investment activi-
ties. Conventionally, short-term credit contracts are usual.
Structure of Indian Capital Market
The capital market in India may be classified into two sectors:
 Organized sector
 Unorganized sector
In the organized sector of the capital market demand for long-term capital
comes from corporate enterprises, public sector enterprises, government and
92
semi- government institutions. In India, even the organized sector of capital
INDIAN MON-
market was ill-developed till recently because of the following reasons:
ETARY AND FISCAL
a. Agriculture serves as main occupation which did not lend itself to
floatation of securities. POLICY WITH
b. The foreign business houses held back growth of securities market. EXCHANGE RATE
c. Various restrictions have been imposed on investment pattern of vari-
ous financial institutions.
d. The investment habit of individuals has been very low.
The unorganized sector of the capital market consists of indigenous bankers
and private money-lenders. The main demand in the unorganized capital mar-
ket comes from the agriculturists, private individuals for consumption rather
than production and even small traders. The supply of money-capital comes,
usually from own resources of money-lenders and falls short of the require-
ments.
Components of Indian Capital Market
The following are the main components of the Indian capital market:
1. New Issues Market.
2. Stock Market
3. Financial Institutions.
New Issues Market: The new issues market represents the primary market
where new shares or bonds are offered. Both the new companies and the
existing ones can raise capital on the new issue market. The prime function
of the new issues market is to facilitate the transfer of funds from the willing
investors to the entrepreneurs setting up new corporate enterprises, going in
for expansion, diversification, growth or modernization.
Financial Institutions: Special financial institutions are the most active con-
stituents of the Indian capital market. Such organizations provide medium
and long-term loans repayable on easy instalments to big business houses.
The following are the main financial institutions that are most active con-
stituents of the Indian capital market:
(a) The Industrial Finance Corporation of India Ltd.
(b) The Industrial Credit and Investment Corporation of India.
(c) State Financial Corporations.
(d) The Industrial Development Bank of India.
(e) National Industrial Development Corporations.
(f) Unit Trust of India.
(g) Life Insurance Corporation of India.
(h) Nationalized Commercial Banks.
(i) Merchant Banking Institutions.
(j) The Credit Guarantee Corporation of India.
93
INDIAN Check your progress 1
ECONOMIC 1) The difference between Organized and Un-Organized sector is set of
ENVIRONMENT rules and regulations. (True / False)
AND GLOBAL 2) The money market is for _______ term and capital market is for
DYNAMICS __________ terms financial needs.
a) Long - Short.
b) Short – Long.
3.3 Foreign Exchange Regulation
Features of Exchange regulation
a) Government will control the full foreign exchange market.
b) All the foreign currencies must be surrendered to the central bank.
c) The central bank fixes the official exchange rate.
d) There will be regulations of the currency to be supplied to the import-
ers.
e) Exporters are required to surrender all the foreign currencies earned
from export.
f) Only some specific sanctioned banks and forex centers can deal in for-
eign exchange.
g) The central bank can act as a discriminatory agency as it can charge
lower rates for essential imports and higher rates for luxurious prod-
ucts.
Objectives of the foreign exchange regulation.
a) Over valuation of currency: - countries in some situation fix the value
of currency higher than what market defines. This is because of few
reasons. 1) Country may be in war and it needs war finance to import
necessary goods. 2) A country is in developing stage and needs expen-
sive capital technologies equipment etc. countries which relies on ex-
port does not prefer to have of to do overvaluation of own currency.
In 2010 Japan and Germany’s currency was overvalued which was not
welcomed in both countries because higher currency value increases
the cost of export and decreases the export growth.
b) Under Valuation of currency: - Countries also reduce the value of
their own currency which is called under valuation of the currency.
China is famous for doing under valuation of its currency to increase
the export by making it more competitive which is one of the reason of
trade war between US and China. India also did devaluation of its own
currency to increase the export.
c) Stopping fluctuation of the currency: - the frequent change in cur-
rency exchange rate is harmful for both export and import, because
changes in exchange rate crates doubts in the minds of purchasers and
sellers and refrain them to doing business contracts.
d) Protection strategy: - to save the domestic industry a country can
stop importing such type of goods which compete with domestic goods
94
and government tries to keep them at bay with exchange control policy.
INDIAN MON-
This also helps to keep check on non-essential goods coming in coun-
try. ETARY AND FISCAL
e) Check on BOP: - The Balance of Payment problem is the priority for POLICY WITH
all government to solve when it occurs and to do everything to stop EXCHANGE RATE
BOP crises. When countries export more the BOP turn into favorable
condition as increase in export increases the flow of foreign currencies
and increase in import increases the payment in foreign currencies. So
all the countries try to increase their export and limit imports espe-
cially those countries who have lower transactional value compared
to other high valued currency. In those situation they impose strict
foreign exchange regulation policy. So higher the export more will be
the favorable conditions for the countries BOP and Higher imports
lower will be the BOP condition. As in 1991 India faced the BOP
crises when oil prices increased.
Summary
The exchange control is a tool for governments to achieve the planned goals
in terms of increasing exports and decreasing imports, maintaining suitable
currency exchange rates, keeping domestic goods more competitive so mar-
ket penetration for new goods or nations becomes easy, earning revenue and
sometimes in retaliation of the adverse policies of other country. These all
are benefits also and the goals also for exchange control but it’s not that easy
as it looks, as we take the steps other countries also take the steps to nullify
the effects and vice versa which many times turns into trade wars and dis-
agreement on trade. The negative side of exchange control is it can reduce
the international trade and efficiency in the international market.
1) A country with higher comparative value of currency can import more.
(True/False)
2) If Government does the under valuation of own currency it is called
_______________ and if market does under valuation of currency is
called ________________.
a) Depreciation – Devaluation.
b) Devaluation – Depreciation
3.4 Monetary Policy
Monetary policy in India
Monetary policy is the policy to control liquidity in the economy. The central
bank of every country handles this policy to compliment fiscal policy. The
fiscal policy is the policy of taxation and public expenditures and public debt.
Monetary policy is responsible for the credit creation and liquidity control in
the economy, these days almost all of the industrial, agricultural and service
sector need credit and monetary policy controls it through various instru-
ments and measures.
95
INDIAN The Reserve bank of India field four measure of money supply as M1, M2,
ECONOMIC M3, M4.
ENVIRONMENT M1: - M1 comprises the cash in hand with people whether it is notes or coins,
demand deposits with the banks and other deposits with the RBI.
AND GLOBAL
DYNAMICS M2: - M2 comprises M1 + savings with post office.
M3: - M3 comprises M1 + time deposits with the banks.
M4: - M3 + All post of deposits.
Usually RBI and Government give more important to M3 money supply
measure earlier it M1 was considered important money supply measures.
Instruments of monetary policy
The instruments are of two types. One general quantitative methods and se-
lective methods.
The general quantitative methods comprises Bank rate, CRR (Cash reserve
ratio), Repo rate and reverse repo rate, SLR (Statutory liquidity ratio) and
open market operations.
The bank rate is the oldest instrument of monetary policy, it was also known
as discount rate because it was the rate at which RBI was giving discounts or
rediscounts to different banks. These days RBI gives financial support (credit)
to the banks on this rate. So if the RBI is increasing bank rates the interest
rate charged by the banks to the ultimate credit taker will increase and less
credit will be taken on higher rate of interest and lower liquidity will reach to
the market.
Open market operations refers to the sale and purchase of different bills and
financial instruments, foreign currencies, gold, government securities and
shares of companies. The sale is made to affects the value of domestic and
foreign currency in international and domestic market. This can also be used
in the situation of deflation and purchasing in the situation of inflation.
CRR (cash reserve ratio) is the requirement which every bank has to keep
with RBI and RBI has authority to change this ratio. If the RBI is increasing
this ratio then less amount of cash will remain with the banks and credit will
be given on the higher rate of interest and vice versa.
SLR (Statutory liquidity ratios) says that banks have to keep liquidity at the
RBI in terms of some percentage of their demand or their time deposits re-
quirements. This is exclusive of cash ratios that means banks have to maintain
some percentage of cash balance also and SLR also.
Selective credit regulations are very important at a time when government of
RBI want to increase or decrease liquidity in some particular sectors or in-
dustries or particular part of economy. This instrument enable RBI to give
credit on a higher rate of interest in some particular sectors at the same time
giving credit to a particular sector on a lower price. This keeps the specula-
tive activities away and help to meet the demand supply ends that also pre-
vent the much higher or much lower price incidents in the market
96
INDIAN MON-
1) Monetary policy is all about maintaining the proper liquidity in the ETARY AND FISCAL
economy. (True / False).
POLICY WITH
2) Higher the CRR, Repo rate and Reverse repo rate more the liquidity
available in the market. (True/ False) EXCHANGE RATE
3.5 Fiscal policy
Fiscal policy in India
The fiscal policy is the policy about taxation and public expenditure. Mon-
etary policy and Fiscal policy both are complementary to each other; they are
not substitute for each other. Fiscal policy also affects the economy with
own way, if the economy is in the slowdown mode or recession is prevailing
in the economy then government would reduce the taxes and do more public
expenditures so that people should find more liquidity in their hands and they
should not stop visiting market and this way market should function at nor-
mal rate and vice versa.
Budget is the document presented by finance minister in the parliament and
comprises all the records of income and expenditure (Revenue income and
Capital income) happened in the past year and also present the proposed
income and expenditure estimation in the upcoming year.
The budget revenue and expenditures are divided into revenue receipts and
capital receipts and same way expenditures are also called as revenue expen-
ditures and capital expenditures.
There is a special post which is independent also, that is comptroller and
auditor general of India which does audit of income and expenditures of
Government of India. Reports of CAG (comptroller and auditor general of
India) is discussed and considered most important document for assessing
government’s transactions done inside India or outside world.
The best example of how government can use fiscal policy after plunged in
economic crises is 1930’s great depression.
Indian monetary and fiscal policy with exchange rate.
1) Higher inflation will force government to have more free or expan-
sionary fiscal policy. (True/ False)
2) Fiscal policy is the policy related to ___________________.
a) Liquidity.
b) Taxation
c) Public debt
d) both b and c.
e) none of the above.
97
INDIAN 3.6 Let Us Sum Up
ECONOMIC The fiscal policy and monetary policy both are the important aspects of the
ENVIRONMENT government and RBI. The aim of both the policies are same to maintain the
AND GLOBAL economic balance and help in growth for the country by different ways and
instruments. Which policy will work depends on the situation, most of the
DYNAMICS
time both policies work together in same direction but sometimes there are
some bifurcations in the view point of RBI and the Government. The Gov-
ernment mostly try to take populous decisions which benefits them politically
as the responsibility of government is huge and targets sometime they put
remains very ambitious, these are the times when friction between RBI and
Government can be seen but lastly RBI mend the way against the pressure of
Government. These are some negative aspects of the autonomous status of
RBI.
3.7 Check Your Progress Answers
Check Your Progress 1
Answer 1: TRUE
Answer 2: (B) Short – Long
Answer 1: TRUE
Answer 2: (B) Devaluation – Depreciation
Answer 1: TRUE
Answer 2: FALSE.
Answer 1: FALSE
2: d (both b and c)
3.8 Glossary
Expansionary and Contractionary monetary policy : - when the more liquid-
ity is maintained by RBI and CRR, SLR and all other ratios are kept lower so
as to generate more liquidity is called expansionary monetary policy, while
same ratios mentioned above are maintained higher and liquidity is main-
tained lower in the economy by RBI is called Contractionary monetary policy.
Expansionary and Contractionary Fiscal policy: - Lower taxes and higher
public expenditure called expansionary and higher tax and lower public ex-
penditure is called Contractionary fiscal policy.
3.9 Assignment
Do the critical analysis of foreign exchange policy of India before 1991 and
after it.
98
3.10 Activities INDIAN MON-
Read 2007-08 recession. ETARY AND FISCAL
Study the worst Inflation (High and continuous rise in prices of goods and POLICY WITH
services) in Zimbabwe country.
EXCHANGE RATE
3.11 Case Study
Read the Fiscal policy of India before 1991.
3.12 Further Reading
1) Financial institutions and financial markets in India: Functioning and
Reforms. By Niti Bhasin. New century publications.2010.
2) India’s Fiscal policy: Prescriptions, pragmatics and practice edited by
Supriyo De. Cambridge University Press. 2017.
99
INDIAN
ECONOMIC Unit INDIA AND WORLD
ENVIRONMENT 4
AND GLOBAL
DYNAMICS : UNIT STRUCTURE :
4.1 Foreign Investments.
4.2 Multinational corporations.
4.3 WTO and India.
4.4 Let Us Sum Up
4.6 Glossary
4.7 Assignment
4.8 Activities
4.9 Case Study
 Concept of foreign investments.
 Concept of Multinational corporations.
 Concept of WTO and India.
4.1 Foreign Investments
International investments have changed the shape of world especially after
World War II, IT revolution and modern banking sectors and of course new
inventions and consumer buying. The term size of Market rules the foreign
investment. It is also an economic tool to measure how much weight is in
your country, it is also a measure to see how much less procedural issues are
in your country. How much more political stability is in your country? Etc.
this is also a political tool to shape the world as after world war II US help to
build the whole Europe under Marshal plan.
Types of foreign investment
There are basically two types of foreign investment
1) FDI (Foreign Direct investment)
This is a long term investment in any country.
This really give benefits to the host country in terms of increasing employ-
ment, technology building, knowing new practices and many more. This can
also be called direct long term investment.
This can be done two way as Inflow of FDI and outflow of FDI. That means
flow of investment coming inside our country and flow of investment going
out from our country.
100
The inflow and outflow both can be possible by doing joint venture as Indian
INDIA AND
and other nation or nation's companies invest together. That is called joint
venture and the control over the company depends on who shares more. The
WORLD
Brahmos Aerospace Company is the joint venture between India and Russia.
Wholly owned subsidiary means having a branch of its own company in other
countries.
Acquisition means acquiring company. As TATA group of companies have
purchased biggest British steel producing company by paying 54,000 Cr In-
dian Rupees.
2) Foreign portfolio investment.
This is short term self-profitability seeing investment. These types of invest-
ment includes Foreign Institutional investment (FIIs) like mutual funds. There
are other instruments also which GDR (Global Depository Receipts), ADR
are (American Depository Receipts) and other currency convertible bonds.
Benefits of the foreign investments
How much foreign investment is important? This question can be asked to
the Chinese government, Market and users. The Chinese international trade
before 1980s and after 1980s is upside down. What china was importing?
After 1980s became exporter of those goods. The technical knowhow of
many technologies, the benefits of western educational concepts, increase in
the amount of research, patents and above all the possibility of reverse engi-
neering of every western and eastern India and World. product became only
possible when in the search of cheap labour and ample amount of raw mate-
rial toll western countries specially to China and China took fullest advan-
tage of this foreign investment in terms of learning and many more.
This example states that foreign investment increase the employability, skills
and after all wages of the domestic labors. The Choice of goods and services
available to consume is another benefit for the host consumers.
The government has now economic and political leverage against the invest-
ing country as well as a source of income. E.g. India leveraged its market
position against Pakistan to keep out South Korean companies from POK
area which India considers integral part of India but at the same time India
yet cannot keep out China from POK and couldn’t stopped China from mak-
ing CPEC (China Pakistan Economic Corridor) as China’s calculation to get
short and direct access to the central Asia for trade and investment. The
reason is same investment but the result is different.
Limitations or Dangers of the foreign investment
The foreign capital flow also depends on how much the absorption capability
host country have? The infrastructure facilities, skilled labors etc. needed to
absorb foreign capital. There are some limitation of foreign investments that
this investment will only come if there are chances of profit and that says that
if sector has more profit foreign investment will come but if basic and strate-
gic sector has less scope for profit, foreign investment may not come with
much needed volume.
101
INDIAN The technologies brought by the foreign investors may not be suitable for the
ECONOMIC economic, social and demographic environment of the host country.
ENVIRONMENT There are chances that MNCs (Multi-National Companies) because of their
huge money or sales volume may try to infiltrate or control the political sys-
AND GLOBAL
tem of the country which is dangerous.
DYNAMICS
Sometimes small countries with big ambitions try to take huge loans or con-
ditional investment in particular project but it does not become fruitful then
the host countries can’t pay back the huge loans and they have to give some
area or territory to the investing country for longer period of time. E.g. Sri
Lanka took the huge loans during the Sri Lankan presidency of Mahinda
Rajpaksa from China to develop Hambantota port which did not takes up and
Sri Lanka had to give that port to China for 99 years of lease. This has hap-
pened with many South African countries also and hence it is called China’s
cheque book policy.
There can be some disagreements between government at political levels and
that can affects the investment decisions or vice versa.
Competition with domestic companies and unfair practices of creating mo-
nopoly or cartel can be practiced if the laws of the home countries are much
relaxed or not implemented properly. E.g. the Bhopal gas tragedy must be
the correct example of this, as the Mithail Aiso Cyanide gas was routinely
transported by road since many years in that factory which was really danger-
ous and then the maintenance of the Bhopal gas plant Union Carbide Fac-
tory) was neglected and staff for maintenance was shelved keeping aside all
the safety laws which resulted in huge catastrophe and killed thousands of
people in 1984.
1) Foreign investment is essential for developing countries to create skilled
force. (True/ False)
4.2 Multinational Corporations
Meaning
A MNC (Multinational Corporation is a massive company which is estab-
lishes mainly in one country called home country and but operated in many
countries called host countries. The important point is headquarter of such
giant companies mostly remains in the mother country from which it has
originated.
Features of Multinational corporations or companies.
1) Huge turnover: - such multinational companies have huge turnovers
because of their operations in many countries and keeping fairly higher
level of prices of their goods because of their higher technological
skills and manufacturing technological and R&D advantages. Such
companies are famous for their products and brands and so charges
more for their brand usage resulting in decent profits from host and
mother countries. Many of the firms have such a huge turnover which
is more than the GDP of many countries. For e.g. Microsoft, visa,
102
Amazon, Tesla, Volkswagen, Walmart and many other international
INDIA AND
giants have more revenue than many small countries.
WORLD
2) Operations controlled by a power center: operations of such huge
companies are controlled from the head office of their mother coun-
tries and they take full revenue to the mother country.
3) Huge economic power: - The economic power of these companies is
huge, they absorb many small companies which benefits them.
4) Technological Advantage: - These companies have more resources,
bigger revenues and of course bigger R&D facilities which makes them
more advanced in terms of technology and that is their USP.
5) Marketing and qualitative advantages: - These companies affect
millions of their viewers with attracting advertisement and have more
quality or impression of more quality in their goods and services. The
important part of these companies is they coin many new ideas which
are coming from new social, scientific and behavioural research.
Advantages of MNCs
1) MNCs can generate employment in the host countries.
2) Inflow of foreign capital is important aspect of such establishment.
Which is beneficial for both the host country and the mother country
which has headquarter.
3) BOP (Balance of Payment) improvement: - the inflow of foreign capi-
tal prospers the foreign reserves of the host countries if the policies,
rules and regulations and laws are proper otherwise sometimes these
benefits do not materialized.
4) Technical and Managerial development: - These companies come with
certain working technologies which makes them new trend for the
host countries. They comes with new technologies which makes host
country population more technical oriented people. Sometimes trans-
fer and training of local population makes more advantages for the
host countries to further indigenize foreign technologies into own tech-
nologies. China is famous for that, they have reverse engendered many
foreign technologies and now they are coming up with own ideas.
This is biggest advantages of having these MNCs.
5) More Choices for local population: - foreign companies comes with
new solutions for the people’s desire of goods and services because
they want to look different from the domestic companies. They also
come with their own culture which change the choice preference and
options available to the host countries population.
6) Strategic Vision: - These companies come in the host countries not
just for commercial reason but sometimes for strategic reasons also.
Especially in terms of Defense, telecommunications, steel, ship build-
ing and many other industries come with bilateral understanding of
the countries. These treaties also comes with some technology trans-
fers. For e.g. French company DCNS is partnering with India ship
103
INDIAN building companies like Mazgao Docs LTD and L&T and many other
ECONOMIC companies to manufacture Scorpion Submarine in India for Indian Navy.
ENVIRONMENT Limitation of the Multinational Companies
AND GLOBAL 1) Tricky for domestic industries: - Multinational companies comes with
DYNAMICS more competitive prices and innovative goods and services which makes
domestic companies nervous and many times these companies acquire
small domestic firms to reduce competition.
2) Drainage of Profits: - The Definition of National Income by IMF
counts the income generates by such foreign companies into national
income of host countries but the reality is these companies takes much
of the proportion of profits earned from host countries to mother coun-
try.
3) Interference into internal matters: - If the host countries political
situation is unstable or has any scope of intervention, these companies
easily sense such things and can lure the political elites into making
favorable policies. These companies can becomes the handy tools of
foreign agencies to remain eyes and ears into host countries which is
dangerous. In many circles these things are common. These compa-
nies also give priority to own profits than the fair profit and welfare of
the host population. The host country must have the strict set of rules
and regulations to curb such misadventure of these companies. The
point to mention here is host countries most of the time are developing
and underdeveloped countries, whose population is not much aware,
literate or technologically skilled to counter such threats of MNCs
while their political elites mostly have less future vision, corrupt inter-
nal system and small monetary and political advantage force them to
make more lenient rules for such companies. For e.g. there are many
countries who have given up their own natural resources to such com-
panies and just take some percentage out of total revenue rather ex-
tracting themselves. UAE, Saudi Arabia, Katar, Kuwait etc. Middle
East countries and some African countries are dependent on USA for
their security and armaments while giving up contracts to western and
European companies.
4) These companies can over exploit the natural resources of the host
countries even the human capital of the host countries because most
host countries need the foreign capital and investment and they want
to maintain good relation and want to remain in the good books of the
big countries by giving entry to such companies. These companies also
involve into changing the culture of the host countries which is making
their selling slow or not allowing domestic population to consume those
goods and services. MNCs through show of modern culture and many
times by presenting wrong information in advertisement lure the local
population to consume their goods and services and makes domestic
culture look like alien kind.
104
INDIA AND
1) MNCs are headquartered in their host country. (True/ False) WORLD
4.3 India and WTO (With reference to developing countries)
The world was shaken by the two world wars within short period of time the
First World War started in 1914 and the ended on 1918, the Second World
War started in 1939 and ended in 1945 with emerging nuclear states. The
most important thing Europe learnt that War is not a solution and they turned
toward Economic integration and GATT (General Agreement on Tariffs and
Trade) was born and succeeded by WTO. The basic difference between GATT
and WTO is the GATT was had no legal powers or regulation force which
can force to comply other nations while WTO can force countries to act
accordingly the rules of WTO acceptation are omitted when powerful coun-
tries do not comply with WTO. There are some other structural differences
also.
Functions of WTO
a) WTO will see that all the rules and regulations decided by the WTO
(Uruguay Round) must be administered and complied by all the signa-
tory nations.
b) The WTO will also do the role of facilitator for the consultations be-
tween and among the different countries fall under the jurisdiction of
WTO rules.
c) The WTO will also administer the “Trade Review Mechanism”.
d) The general council of the WTO will supervise the regular work and
monitor the regulation related to goods, service and TRIPs (Trade
related intellectual property rights).
e) The general body also acts as settlement body which tries to solve the
trade related disputes between or among countries.
f) The general council also makes the different councils like goods coun-
cil, service council and TRIPs.
WTO and developing countries like India.
There are certain advantages to the developed countries because of their
technical and structural capabilities and WTO conditions and rules regula-
tions are giving bigger pie of world trade to the developed countries. One
way developed countries have more superior technologies and other way
they want to keep it with them only by intellectual property rights. There is
an argument that these technologies come from the years of research and
capital investments so it can’t be given. The modern economic system is
based on efficiency and many types of capital goods like machines and tech-
nology is required, many LDCs (Low developing countries) can’t afford to
buy it or buy in large quantities. For e.g. there are barely 4-5 countries in the
world which have the technology of making aero engine core and these tech-
nologies they will never pass to the other country even if they want to pay for
it.
105
INDIAN It is true that WTO term and conditions are presently beneficial for the devel-
ECONOMIC oped nations but once the developing countries built their capabilities in cer-
tain sectors they can also take the advantage of it, as China is taking advan-
ENVIRONMENT
tage of producing manufacturing goods at cheaper price and India is using
AND GLOBAL tool of IT industries to have bigger pie of that particular sector in the world.
DYNAMICS There are many other sectors like agriculture, textile where many issues have
divided developed nations and developing and low developed nation on dif-
ferent camps. There are issues related to agriculture subsidy which most of
the countries want to continue with many of the countries decline to slash
because of poor condition of their farmers, artificial price reduction and mar-
ket denials.
Many times political parties and some other people have voiced against the
WTO and suggested to opt out of it but that will create problems for India at
a time when it can take increasing benefits of WTO. India if leave WTO will
have to ink the Trade pact with all of the countries bilaterally or multilaterally
which is cumbersome process, India will have to negotiate with each country
or group differently and will have to indulge in long negotiations. This will
take long time and till that time trade will remain affected.
India so has choose to remain in WTO and worked to gain more exports in
the rules and regulations framed by WTO. India by own national legislation
supports the compliances passed by the WTO and trying to expand market by
increasing competitiveness and efficiency with some new field for exports.
E.g. TRIPs.
Foreign companies can middle or interfere in the political structure of
the host countries which can be dangerous for the host country.
1) (True / False)
2) Foreign portfolio investment is _______________.
a) Long term b) short term
c) Profit oriented d) both b and c.
3) The main difference between GATT and WTO was the legal power
enjoyed by WTO and not by GATT. (True/False)
4.4 Let Us Sum Up
The GATT turned WTO has more powerful measures to comply the rules
made by the WTO. The WTO is going to be more beneficial for India as India
will expand markets, efficiency and as India will come into more fields as
now government of India has decided to increase the export of defense equip-
ment. The ISRO (Indian space research organization) is launching satellites
of many countries including advanced countries like US. Which shows the
efficiency and trust factor in Indian technology, so these are some new areas
where India should reach out to the world market and expand its footprints.
106
4.5 Answers for Check Your Progress INDIA AND
Check your progress 1 WORLD
1) TRUE.
1) FALSE.
1) TRUE
2) d (both b and c)
3) TRUE
4.6 Glossary
CPEC: - This is a Chinese funded huge project from the Chinese northern
states to Pakistan’s Gwadar port. The project include establishment of rail-
ways, roads, power stations and other infrastructure projects. The biggest
reason behind this project is China’s weak position in Indian ocean , as China
has to pass from Malacca straits which narrow and can easily chocked, most
of the Chinese trade passes through this narrow strait. Moreover the dis-
tance from South China Sea to Gulf countries is much more compare to this
new CPEC route. The total investment projected under this project is 60 to
80 Billion US $. The actual figure is not known even to the Pakistan’s Na-
tional assembly citing national security issue. This project is a part of China’s
One Belt One Road Project. India has not become the part of this project
because CPEC passes through POK and India considered this project as
issue of sovereignty.
4.6 Assignment
1. Explain the trend of FDI in India from 1991 to present.
4.7 Activities
1. Read about the few cases of positive and adverse impacts of FDI in
any country and make small note on it.
4.8 Case Study
1. Discuss the cases of India and US against each other in WTO.
2. Read about the joining of India in Wassenaar Group.
3. Read about the joining of India in MTCR. (Missile Technology Con-
trol Regime).
4. Read about the joining of India in Australia group.
1) Confessions of an economic hit man by John Perkins. 2004.
2) A century of foreign investment in the third world by Michael J Twomey.
Routledge Publications.2005.
3) Foreign direct investment (FDI) in India by Niti bhasin. New Century
Publications, 2012.
107
INDIAN 4) WTO and India Edited by Anil kumar Thakur and Nageshwar Sharma.
ECONOMIC Deep and Deep Publications 2007. Indian Economic Association.
ENVIRONMENT 5) Business Environment by Francis Cherunilam 20th ed, Himalaya Pub-
lishing House.
AND GLOBAL
DYNAMICS 6) Indian Economy by Gaurav Datt, 70th ed, S. Chand Publication.
7) Indian Economy: Performance and Policies by Uma Kapila. Acedemic
Foundation. 2011.
108
BLOCK SUMMARY
This block will give you the basic historical and bit critical idea about plan-
ning in India, agricultural problems and critical situation of India in 1965 and
subsequent green revolution, policy regarding industry with past policy com-
parison, disinvestment and privatization process in India. Historical and critical
examples also have been given as an when required to explain these con-
cepts.
109
INDIAN BLOCK ASSIGNMENT
ECONOMIC Short Answer Questions
ENVIRONMENT 1. What is NITI Ayog?
AND GLOBAL 2. Give once reason why agricultural sector is important to India?
DYNAMICS 3. What is disinvestment and privatization?
4. What is industrial policy?
5. What was MRTP act?
1. Do the critical analysis of planning process in India?
2. List the factors which helped India to achieve agricultural indepen-
dency ?
3. Discuss Features of Industrial Policy?
Enrolment No.:
1. How many hours did you need for studying the units ?
Unit No. 1 2 3 4
Nos of Hrs
of the block:

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110
Dr. Babasaheb
Ambedkar BBAR-301
Open University
BLOCK-4 SOCIETY AND INDUSTRY - INDIAN AND

GLOBAL TRENDS WITH CASES
UNIT 1
SOCIAL RESPONSIBILITY OF BUSINESS
UNIT 2
CONSUMERISM
UNIT 3
INDUSTRIAL SICKNESS
UNIT 4
INDUSTRIAL RELATION AND WORKER’S PARTICIPATION
SOCIETY AND BLOCK 4 : SOCIETY AND INDUSTRY - INDIAN AND GLOBAL
INDUSTRY - TRENDS WITH CASES
INDIAN AND Block Introduction
GLOBAL TRENDS This block will give you the basic information about the concept of social
WITH CASES responsibility of the business towards the society. There are many reasons
why business sustains and the support of society is crucial, so business must
repay directly and indirectly remove getting from business. The unit will also
talk about the role of various stockholders and business has responsibilities
to manage and give appropriate returns to all the stockholders. The basics of
social audit is also explained in the first unit.
This unit will also discuss the concept of consumerism and consumer rights.
This is a relatively new concept. As the complications for the consumers has
been increased, the choices have been increased so the problems have been
increased for the consumers and so the rights and responsibilities of the con-
sumers have been increased. This unit will give ideas about that.
The concept of Industrial sickness and Trade union have also been discussed
with basic sense. The topic which is related to it is worker’s participation in
decision making and industrial relation and disputes. All these topics have
been discussed in basic sense.
Block Objective
 To know about the planning process, its success and failures.
 To know the social responsibility of business.
 To study the basic concept of social audit.
 To study the basic concept of consumer’s rights and consumerism.
 To know the basic concept of industrial sickness and Trade Unions.
 To know about the Worker’s participation in management.
 To know about the Industrial relations and disputes among the
industry.
Block Structure
Unit 1: Social Responsibility and Social Audit
Unit 2: Consumerism and consumer’s Right
Unit 3: Industrial Sickness and Trade Unions
Unit 4: Worker’s Participation in management and industrial relations
112
Unit
SOCIAL RESPONSIBILITY OF BUSINESS
1
: UNIT STRUCTURE :
1.2 Introduction
1.3 Social Responsibility of Business.
1.4 Social Audit
1.5 Let Us Sum up
1.7 Glossary
1.8 Assignment
1.9 Activities
1.10 Case Study
 Concept of Social Responsibility of Business.
 Concept of Various Responsibilities of Business towards stakehold-
ers.
 Concept of Social Audit
1.2 Introduction
This chapter will discuss what more firms, industries and all other variables
which are working with the society, with the help of society so this is moral
responsibility of the business to give back to the society. There are many
stakeholders for the business and they all provide support to the business, it
is all mutual understanding of various stakeholders to exist in the society.
There are moral responsibilities of business towards the consumers to pro-
vide better goods and service and even after sales services, so that consumer
must remain satisfied.
There are responsibilities towards shareholders which are most important
part of business, their main goal is what return they are getting from their
investment, this must be take care of so that the business must remain in the
higher investment spot of investors.
There are other stakeholders also like Government and its policies, foreign
exchange regulation, foreign governments and population etc. every stake-
holder which is in receiving end want that business must do some social
contributions and every providing hand must take care of this thing.
113
SOCIETY AND 1.3 Social Responsibility of Business
INDUSTRY - Meaning
INDIAN AND The social responsibility of business means that what business does more
GLOBAL TRENDS than what law has directed to do for the Society. This shows that it is more
WITH CASES than legal obligation of the business. This is not compulsion but an ethical
voluntary work of the business.
The business do not work in isolation, there are many stakeholders from the
society some are directly related with the business and many which are not
related are also indirectly connected with the activities of the business. The
shareholders, consumers, suppliers and the resources used and local commu-
nity all are part of this business. In the twentieth century no business can be
sole private business it is directly connected with the workers, management,
consumer of the local communities, government and all unions are also part
of business.
The Classical and Contemporary Views
There are two views on social responsibilities. One is classical view and an-
other is Contemporary views. The Classical views says that business is for
economic activities not for Non-Economic activities.
So the only responsibility of the business is to increase the profit of the busi-
ness to Business is in the market and under established law.
The contemporary views are different, according to them business is a part of
society and remain under the defensive umbrella of the society and has im-
portant obligations to serve society. There are many cautious voices which
wants to define that business should cautiously approach in terms of social
responsibilities. The suggestions for the business in terms of social responsi-
bilities are as follows
1) The direct stakeholders are more important and meeting their expecta-
tions are first priority. Then business should also think about social
responsibility.
2) The profit is the most important priority for the business.
3) The long run objective of the business must be the all-round welfare of
the society.
4) The extent to which business has power to influence society that will
be the limit to do welfare of society by the business.
5) The social responsibility is related to the magnitude and the size of the
company and the industry.
6) The business should take only those social responsibilities in which
business has understanding without understanding business should not
take any social responsibility.
7) Business must take some social burden to compensate the negative
external effects produced by the business.
114
Factors affecting social Responsibility of business SOCIAL RESPONSI-
1) Top Management: - Top management is the most important factor BILITY OF
which takes the lead in terms of decision to take social responsibility BUSINESS
and the extent of the social responsibility because when it comes from
the highest level there are implementation advantages on the said de-
cisions.
Case 1)
The Tata Iron and steel Company is the best example in India for the social
responsibility, the company established by Jamsed ji Tata. In his letter to his
son Dorabji tata he mentions “Be sure to lay out wide streets planted with
shady trees, every other one of the quick varieties. Be sure there is plenty of
space for lawn and gardens. Reserve large areas of footballs, hockey and
parks. Earmark areas of Hindu temples, Mohammedan mosques and Chris-
tian churches”
This was the company who first went for the social audit when the concept
of social audit was very less known even in the world in 1970.
Case 2)
Robert Owen in the UK bought the textile mill in Scotland so that he can
Social responsibility of Business. conducting the experiments on business
practices, after purchasing the mill he incorporated many socially respon-
sible measures for the betterment of the workers working there. He created
a fund for sick people who were working there, denied the child labour sys-
tem, he provided the services of bank and a store on reasonable prices and
lastly he started the “ Institution for the formation of character” for both
children and adults to educate them on what should be the character of so-
cially responsible person?
Case 3)
George Cadbury the son of chocolate maker John Cadbury created a model
village for the benefits of own workers, where many of the services were
given by the company itself for the betterment of the worker and they also
appreciate the efforts of their bosses.
Earlier the model of the social responsibility was driven by the top bosses or
from the top level, there was no demand from the other stakeholders for
their own betterment or any social responsibility but now in the 21st century
the social responsibility model is totally different which is now driven more
by stakeholders and also by the top management or bosses.
• Board of directors or partners or Joint companies of foreign coun-
tries: - The thinking of board of directors towards social responsibility
is also very important influential variable affects the working of the
company and the social responsibility policy.
Case 4)
Energy giants Total and Chevron are propping up Myanmar’s junta with a
gas project that has allowed the regime to stash nearly five billion dollars in
Singaporean banks, a rights group said Thursday. France’s Total and US-
115
SOCIETY AND based Chevron have also tried to whitewash alleged rights abuses by Myanmar
INDUSTRY - troops guarding the pipeline, including forced labour and killings, two re-
ports by US based Earth Rights International said. The group urged the inter-
INDIAN AND
national community to exert pressure on the two companies, which have long
GLOBAL TRENDS managed to avoid Western sanctions against the generals who rule the im-
WITH CASES poverished Southeast Asian nation.
“Total and Chevron’s Yadana gas project has generated 4.83 billion dollars
for the Burmese regime,” one of the reports said, adding that the figures for
the period 2000–2008 were the First ever detailed account of the revenues.
“The military elite are hiding billions of dollars of the peoples’ revenue in
Singapore while the country needlessly suffers under the lowest social spend-
ing in Asia,” said Matthew Smith, a principal author of the reports. The junta
had kept the revenues off the national budget and stashed almost all of the
money offshore with Singapore’s Overseas Chinese Banking Corporation
(OCBC) and DBS Group (DBS), the watchdog said. “The revenue from this
pipeline is the regime’s lifeline and a critical leverage point that the interna-
tional community could use to support the people of Burma,” added Smith,
the group’s coordinator for the country. But Chevron said related develop-
ment projects had helped local communities.
“We believe that Total’s health, economic development and education pro-
grams, which we support, are critical and substantively make positive im-
provements to the lives of the people in the Yadana project communities,” a
Chevron statement said. Total questioned the accuracy of the reports. “An
initial reading has already enabled us to identify inaccuracies lack of precision
or mistaken interpretations,” Total vice-president Jean-Francois Lasalle told
AFP. He added the rights group “at no moment recognizes the benefits of our
presence, notably in the areas of education and health”. Total and Chevron
are two of the biggest Western companies in Myanmar and have recently
come under fire for their dealing with the regime, following the extension in
August of the house arrest of pro-democracy icon Aung San Suu Kyi. Total
has been able to continue working there because EU sanctions against the
country currently only cover arms exports, wood, minerals, gems and metals.
US lawmakers in July 2008 dropped plans for sanctions that would have
ended tax write-offs enjoyed by Chevron and would have pressured it to pull
out from the Yadana project. Total has been a major investor in the Yadana
project since 1992, holding a 31.24 percent stake. Chevron has a 28 percent
stake in the field, production from which represents 60 percent of Myanmar’s
gas exports to Thailand. Earth Rights said that as a result of the hidden rev-
enues, Total and Chevron were a “primary reason” why international and
domestic pressure on the Myanmar military regime had been ineffective for
decades.
This case clears how social responsibility is many times used by many compa-
nies all over the world to mask their actual intentions and only concentrate on
the profit without seeing any moral or legal violations.
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Society Factors: - Social characters of the society is also influential on what SOCIAL RESPONSI-
a company can do in terms of social responsibility. Suppose if very resource- BILITY OF
ful company is established nearby very poor locality so they will expect cer-
tain different types of social responsibilities such as health, education etc. If
BUSINESS
the resourceful locality is nearby they will desire different types of services
and amenities from the company, so the types of social services depends on
the type of locality nearby.
Government and Laws: - Government controls and laws are important
factors determining what you can do and what not even in terms of social
responsibilities. The laws which can be prohibiting one particular thing may
not be banned in other countries, Anti-trust legislation, unfair trade practices
are commonly prohibited in all countries but with certain differences in the
degrees. Any foreign firm or even indigenous firm should not try to control
the authorities through unfair practices.
Political Influences: - Political influence from the various stakeholder groups
of the society are also important to influence the social responsibility of the
companies. NGOs (Non-Governmental Organizations) are also sometimes
taking important role in the making of and controlling the social responsibil-
ity of the companies but sometimes many NGOs operated from the inside or
outside of the country influence wrongly the local population against the
schemes of government and become the tools of foreign powers. This should
not be done.
Competitors: - The social responsibilities are influenced by competitors also.
Social responsibility of Business.
When other become more active with the society and it produces positive
results others also follow the same and try to out maneuver each other by
doing more social responsibility works. Sometimes competitors expose each
other by their bad tactics so the bad impression about particular companies
can be created.
Ethics driven companies: - some companies have the rule based ethical deci-
sion making top bodies which always takes ethics and quality with them, this
can be termed the example of self-control. The Tata Tisco Company is the
one example of this kind.
Responsibilities of the business towards the different sections and stake-
holders.
Responsibility to shareholders
There are many responsibilities of any company, industry towards the all
direct and indirect stakeholders. To protect the interests of the shareholders
and employees, “the primary reason of a company is to stay in business”. To
provide the appropriate retunes to the shareholder is the main task of the
firm.
Hence, it should develop and improve its business and build up and it must
be economically sound, earn fair profit to give retunes, the company should
earn sufficient profit. Even in the hard times they should first give priority to
117
SOCIETY AND the shareholders. The financial condition of the company in this dynamic world
INDUSTRY - must remain sound so it can sustain in the competitive world. Doing invention
and progress, the company should consolidate and improve its position and
INDIAN AND
help strengthen the share prices.
GLOBAL TRENDS
The shareholders are also want to see that their investment must be protected
WITH CASES but also they think that it is the question of the image of the firm. The company
matters are the prestigious matters for the shareholders- a question of image.
Responsibility to employees
There is another important responsibility of business towards the employees
because they are the main pillars of the organization. Their co-operation should
remain important and the relation between employee and employers remain
smooth there are some responsibilities of company towards employees.
The responsibility of the organization to the workers include:
1) The payment of appropriate wages.
2) The facility of the safe working conditions
3) Provision of the best possible labor welfare policies.
4) Provision of the proper training and safety measure for the employees.
5) Provision of the appropriate appreciation and promotional policies.
8) Opportunities for the employee’s participation if they are able to do so.
Case: - 5)
The case describes the maltreatment of employees and sweat shop conditions
in Nike’s Asian factories. In many Asian countries, Nike violated local labour
laws. According to the Vietnam labour watch, Nike did not pay the minimum
wages, did not provide proper working conditions, and did not take adequate
health and safety measures. In addition, Nike turned a blind eye to child labour
and sexual harassment in its factories. Though the company has taken some
measures to improve the situation, it has failed to improve the working con-
ditions and put an end to the ill treatment of its employees. On 17 October
1996, CBS News ran a 48-h program covering the inhumane treatment of
workers by their supervisors, the payment of wages below the legal minimum
wage, and the sexual abuse of several women workers at Nike’s shoe manu-
facturing plants in Vietnam. Workers had been physically assaulted on the
job. Temporary workers were paid, on an average, 20 cents per hour, while
team leaders were paid $42 per month; regular workers were paid even less.
The CBS news program aired interviews with team leaders and even showed
a copy of a labour contract to substantiate its claims. On March 14, 1997,
Reuters reported that 56 women were forced to run around one Nike factory.
Twelve of them went into shock, fainted, and were taken to the hospital. As a
result of these reports, a group of Vietnamese Americans contacted labour
groups and journalists in Vietnam. A group called Vietnam Labour Watch
(VLW) was organized to study the working conditions of workers at facto-
ries in Vietnam and monitor Nike’s labour practices on an ongoing basis.
VLW visited Nike’s factories in Vietnam and met workers, shoe manufactur-
ing executives, labour union representatives, and legal experts. By late 1997,
118
VLW came out with a report that accused Nike of violating numerous labour SOCIAL RESPONSI-
laws. According to the report, Nike did not pay the minimum wages, did not BILITY OF
provide proper working conditions, and did not take adequate health and
safety measures. In addition, Nike turned a blind eye to child labour and
BUSINESS
sexual harassment in its factories. The report also observed that there was a
difference between the practices in
Nike’s factories in Vietnam and what Nike told American consumers about
its labour practices. Analysts said that in spite of its good image in the USA,
Nike was a very different company in Vietnam and other Asian countries.
The sweatshop conditions in Nike’s Asian factories were confirmed by sev-
eral leading newspapers and journals including The New York Times, USA
Today, The Wall Street Journal, AP, and Reuters. However, Nike had repeat-
edly claimed that it did not tolerate worker maltreatment in its Asian facto-
ries. The company had developed and published both a “code of conduct”
and an agreement with its Asian subcontractors, setting out the company’s
position on wages and working conditions.
Responsibilities towards Consumers
The ultimate buyer of all the goods and services, the ultimate person for
whom Social responsibility of Business. all are making their efforts, the source
of income for all the stakeholders and the ultimate source of knowing the
company impression must remain at the center point of the all policies (only
good) run by the company to make fair profits, to market or promote goods
and services, while giving information about the goods and services, a com-
pany must remain honest and do the best for the welfare of the consumers so
there are some responsibilities of the company towards the consumer.
1) Increase efficiency and try to keep price low with good quality goods
and services.
2) New, better goods and service with smooth supply and service must
be insured.
3) There must be no side effects on the purchaser or the user.
4) Information must be provided clearly, appropriate, and understandable
way without any kind of misleading marketing.
5) the most important thing is satisfaction of the consumer. That should
be delivered.
Responsibility towards Community
A business and company also has a responsibility towards the community
near which they thrive. The community is important support for the growth
of the any company or industry. So there are some responsibilities of business
towards the community.
1) To protect the environment and maintain the cleanliness for the benefits
of the community.
2) Helping community for their total development.
3) Maintaining efficiency and using less resources of the community.
119
SOCIETY AND 4) Helping community in terms of research and development and R&D.
INDUSTRY - 5) Helping and taking out the poor communities.
INDIAN AND 6) Contributing in all national development, social and educational fields.
GLOBAL TRENDS Check your progress 1
WITH CASES 1) Profit is not the main reason for doing business. (True / False)
2) Business should only do social responsibility which is under the capacity
of the business. (True/ False)
3) If the business itself takes initiative in taking care of workers, marginal
productivity of labours will increase. (True / False)
4) The contemporary view of social responsibility put direct stockholder’s
interest first and then gives the preference to social responsibility. (True/
False)
5) Tata was the first company doing social audit in India. (True/False)
1.4 Social Audit
Social Audit Meaning
The importance or the need of social audit is to measure the works of the
companies in terms of social welfare of the society. The aim of social audit is
To identify the working style and works of the companies which do impact
on society.
The social cost benefit analysis, gain and loss barometer for the society, and
to measure it.
To amplify it to the customers, to the shareholders and every interested party
of the company so that it can be marketed or informed that this company is
doing for the society.
Methods of social Audit
1) Social Process audit: - this audit is also called Programme management
audit which in short says that company first define the work field where
it want to work and what to work? Then the cost and benefit analysis
of that work and feasibility also. Then the management or monitoring
of that work being done by the company and lastly to see whether
these goals have been met or not.
2) Financial statement audit: - This is complicated social audit like
financial audit. This is presented in a way of balance sheet as financial
statements are usually kept for the record.
3) Macro-Micro social indicator audit: - micro indicators means the
goals of companies or the work done by the companies (health, safety,
education, housing, accidents, pollution control measures, etc.) are
how much going with the macro indicators which are major goals or
policies set by the country or the government.
4) Constituency group audit: - this is like political constituency
satisfactory test. In this audit needs and preferences of the every
stakeholder of the company is collected and then it is compared with
120
the work done by the company and evaluated what have been done SOCIAL RESPONSI-
for every stakeholder. BILITY OF
5) Partial social audit: - this audit just measures the particular aspect of BUSINESS
the social work done by any company. Energy conservation etc.
6) Comprehensive Audit: - this audit type measures full performance
of the organisation with social audit.
Problems in measuring social audit
1) Its new concept and yet to take off in the studies.
2) No clarification is made as what to be included in social audit? and
what not to?
3) There are many activities, which cannot be evaluated instantly, or
evaluated qualitatively but cannot be converted into monetary terms
like national income calculation.
Conclusion: -
The business cannot be done in the isolation, there are various stakeholders
in the business and each and every stakeholder must be satisfied and can have
their fair share of own in the business. There must be common understanding
in the business that there are some stakeholders which are most important
for the development of the business. The consumer must be the utmost priority
for any business and welfare of society. The materialistic progress must be
there but moral and ethical aspects must be there in the business because
those companies who had compromised with these aspects had lost own
existence.
1) Social Audit is to be done to measure the gain and loss in terms of
social benefits and loss. (True/ False)
1.5 Let Us Sum up
This unit shaded light on the different aspects of concepts of social responsi-
bilities of business, this shows some basic understandings as business and
society go hand with hand and both survive on each other, so the business
should take care of social responsibilities also. There are various stakehold-
ers with various expectations from the business and they are also part of
society but sometimes the interest of larger chunk of society contradict the
interest of some people directly related with business and these types of situ-
ations creates challenges for the business to handle so it’s really tough for
any business to satisfy the expectations of all the stakeholders but that’s the
way to make more successful business environment.
121
SOCIETY AND 1.6 Answers for Check Your Progress.
INDUSTRY - Check Your Progress 1
INDIAN AND 1) False.
GLOBAL TRENDS 2) True.
WITH CASES 3) True.
4) True.
5) True.
1) True.
1.7 Glossary
1) Antitrust legislation: - A legislation which are specially created, not to
allow any Company to create absolute monopoly or any such power.
1.8 Assignment
1. What are the social responsibilities of business state with examples?
1.9 Activity
Search and make short notes on how business social responsibilities do?
1.10 Case study
Read the cases from the books mentioned in the Bibliography.
1.11 Further reading
1) O. C. Ferrell, John Fraedrich, Linda Ferrell - Business Ethics_ Ethical
Decision Making & Cases, 10th Edition (2015)
2) William H. Shaw - Cengage Advantage Books_ Business Ethics_ A
Textbook with Cases -Wadsworth Publishing (2010)
3) Francis Cherunilam – Business Environment_ text and cases, Himalaya
Publishing house, 26th ed. 2017.
4) Ananda Das Gupta (auth.) - Business Ethics_ Texts and Cases from
the Indian Perspective-Springer India (2014). (For cases also)
5) W. Michael Hoffman, Robert E. Frederick, Mark S. Schwartz - Busi-
ness Ethics_ Readings and Cases in Corporate Morality-Wiley-
Blackwell (2014). (For cases also)
122
Unit
CONSUMERISM AND CONSUMER RIGHTS
2
: UNIT STRUCTURE :
2.2 Introduction
2.3 Consumerism
2.4 Consumer’s Rights
2.5 Let Us Sum up
2.7 Glossary
2.8 Assignment
2.9 Activities
2.10 Case Study
 Concept of Consumerism.
 Concept of Consumer’s Rights.
2.2 Introduction
This Business is thriving and GDP of most of the leading countries is increas-
ing by the time, goods and services are increasing and the product differen-
tiation is also increasing, the main economic problem of Choice is making
life of people more comfortable but also more confusing, many questions are
unanswered, many consumers are cheated, they don’t know where to go and
what to say? Many consumers in developing countries are seeing new things
of western worlds. They are using it, e.g. ATM but they don’t have proper
information, they don’t know if in a problematic situation what to do? There
is lack of information and education in the developing countries. The speed
of reaching goods and services to the less known community is more than
the speed of reaching information regarding those goods and services. So
somewhere is a problem, information is not reaching or intentionally not
given, Consumerism is the solution for all these problems.
This unit will give you the basic idea of consumerism and rights of consum-
ers.
2.3 Consumerism and Consumer Rights
Meaning
The word consumerism first came into existence in 1960. This was going to
pose a challenge to the companies in the world market.
123
SOCIETY AND Consumerism can be said as consumer force intended to defend consumer
INDUSTRY - interests in the market by shifting the consumer pressure on the companies in
the market. Consumerism is an objection of buyers on the wrong business
INDIAN AND
practices. E.g. wrong branding, fake goods, insecure goods, obsolescence of
GLOBAL TRENDS goods, contamination, fabricated pricing, making groups and collusion and
WITH CASES charging higher prices from the consumers, misleading packaging, false and
misleading advertisements, faulty assurances, black marketing, wrongdoing
in the measurement and weightage measurement.
Consumerism pose the threat to the basis of free market structure. The demands
of the consumer must be respected in the free market economy. The political
and judicial means must be used for the removal of these wrong doings. E.g.
laws for removal of these wrong doings.
P. Drucker explains that consumerism defies four significant aspects of
marketing field
(1) It assumes that buyers know their needs.
(2) It is also assumed that market or business knows what buyer want?
(3) This was also assumed that business provides all the suitable information
about the goods and services.
(4) It is also assumed that the provided goods and services satisfy the
needs of consumer and the company promises also but it is not always
necessary.
Consumerism covers the following areas of consumer dissatisfaction and
remedial efforts:
1) The struggle and dissatisfaction between consumer and sellers in market
must be removed and both must behave rationally. The sellers should
not go ahead with the wrong depiction of their goods and services just
to sales in the market, the customer satisfaction is the core of the market,
weather consumer is dealing with profit making organisation or non-
profit making organisations, consumer must not face situation where
it creates doubt over the goods and services of any kind. The wrong
intentional pricing policies and depiction is the main point which
consumerism defies and targets.
(3) In modern times the consumer in many modern developed and
developing nations considers the quality life as an important factor and
how to maintain environment and keep it healthy for the coming
generation is also a point of consumerism.
Consumerism is the public demand both for improvement in the way marketing
works to make them more informed consumer, more responsive consumer,
more sincere in buying preference, more honest and more effective, and
concerned for every type of consumer related goods and service other than
private goods and service provider.
Consumerism and its Protection
The idea of consumer supremacy and choices are limited to what sellers and
their marketing tactics show to them and lead them in the way they want to.
124
It has been observed most of the time while asking students about the CONSUMERISM
introduction of new goods, their uses, advantages is always shown by sellers, AND CONSUMER
goods and services are most of the time never demanded by the customer it
is always shown by the seller, consumerism must concentrate on this aspect.
RIGHTS
In India consumers are facing many problems related to goods and services
and specially related to essential goods and service. The difference in the
demand and supply has increased the level of artificial scarcity and profiting,
this hurts the soft belly of consumers.
The Indian consumers are unfortunate in terms of level of competition which
is ultimately costing their pocket more compared to other countries buyers
of the same thing. The Mobile internet market was one such field where
Indian consumers have ended paying with heavy prices. After Jio entered
into market with the practice of predatory prices which forced some companies
to leave market because of cut through competition and remaining companies
will have to get down with their prices much lower than what they were
charging earlier.
Many new goods and services which are common in many advanced countries
are rare or much less accessible in India. There are less verities or options
available for the Indian consumers, many sites which even practice
differentiation by the consumer originated from which part of the world so
that many goods sold on international sites cannot be seen or purchased on
regional sites or sites specially made for particular country. E.g. Amazon.in
or Amazon.com.
The justice system and the grievance compensation systems in India are
cumbersome and full of tactics which are going against the will of consumers
who seeks justice.
Day by day the graph of consumer movements have increased which shows
that still business has not reached the level where they can satisfy the consumer.
Drucker says that consumerism is “product-oriented marketing.”
Consumerism will be terminated automatically or will be useless if business
honestly practices marketing concept, viz. customer-oriented marketing
philosophy.
Why do we need consumerism?
Consumer choice is affected by mass marketing means using very advanced
ways of persuasion. The consumer exactly cannot know whether drug
preparations meet minimum standards of safety, quality and efficacy. He usually
does not know how much is the nutritious value in the food prepared by
restaurants and how do they do it; whether the performance of a product will
in fact meet his standards or said specifications, all these things are important
while doing marketing.
1. Protection of the consumer in the case of using goods and services
which are dangerous while using. So the safety measures must be taken
care of.
2. Protection of the consumer against any wrong doings in the market.
125
SOCIETY AND 3. Ecological and environmental effects of chemical, fertiliser or refinery
INDUSTRY - complexes will have to be seriously considered because they pollute
water, air and food and endanger human life. In India 1984 Bhopal
INDIAN AND
Gas Kand became controversial because of carelessness of the company
GLOBAL TRENDS union carbide, the cost cutting measures cost thousands of life of Indian
WITH CASES citizens and most of the people remain stranded without any
compensation.
4. Adequate protection of consumer public against the abuse of monopoly
position and/or restrictive trade practices. Protection delayed is
protection denied.
Responsibilities of Consumers
1) Be aware and ask questions about the goods and services purchased or
wishing to purchase.
2) Social Responsibility- Consumers must be careful about the use of
goods and services, their usage patterns and advantages and
disadvantages on the various groups of society. This is important
responsibility of every consumer.
3) Environmental Awareness- To be sensitive about what their consumption
of goods does to the environment and not waste scarce natural resources
or pollute the earth.
4) Solidarity- To act together through the formulation of consumer groups
which have the strength and influence to promote consumer interests.
In the present world the issue of consumerism is not limited to only on some
local areas or national level it has gone to the world level. The level of trade
in the world needs to be studied on this topic in the context of bigger scale.
There are levels of the countries in the world on the bases of technological
progress as developed nations have the superior technologies and the second
or third line of the technology is in the hands of these underdeveloped countries
which are victims of negativity of limitation of these technologies, nobody
does transfer the superior technologies because it steals their market, as India
is searching the jet engine technologies since many decades, fly by wire
technology ultimately developed by India only no country helped India and
there are many more cases, transfer of full technologies are rare.
The United Nations has adopted a set of universal recommendations for
consumer protection.
These cover seven areas:
1. Physical security.
2. Upgrade and protect of consumers’ monetary interests.
3. Quality standards for the security and quality of consumer goods.
4. Delivering facilities for essential consumer goods and services.
5. Awareness programmes for the consumers.
The aim of these advisories were well described by the United Nations
Secretary General in his 1983 report — ‘The draft guidelines represent an
126
initial attempt to create an international framework within which national CONSUMERISM
consumer protection policies and measures can be worked out. They are
AND CONSUMER
also intended to assist the international community in its consideration of the
question of consumer protection policy and to further international co- RIGHTS
operation in this field.’
1) Consumerism supports the assumption that buyers know their needs.
(True / False)
2) Business can practice the cartelisation and artificial scarcity. (True/
False)
3) More competition is good for consumers. (True / False)
2.4 Consumer’s Rights
Rights of Consumers
(1) The right to safety
(2) The right of Information
(3) The right of Choice
(4) The right to be listened
1) The Right to Safety
When a consumer is purchasing any kind of goods or services it must be safe.
Many times research has shown that some goods regarded safe once have
found some or many hazardous effects on the health or the environment or
the future generations in general.
There were many goods which earlier were not understood as harmful now
they are regarded as harmful, there are many medicines which are banned in
developed countries but generally sold in underdeveloped countries, DDT
was once used in ample quantity now it is not in used in many advanced
countries and others. CFC was once used much more for cooling appliances
like refrigerators now after knowing it’s very bad effect on Ozone layer it has
been banned.
2) The Right of Information
The right to be informed has important place as – it includes false or misleading
advertising, insufficient information about contents in products, inadequate
information on how to use products and operating instructions, and
information which is misleading about pricing or credit terms etc.
Any seller should take benefit of every opportunity to communicate with
purchaser and to inform them about the advantages and characteristics of the
product offered. There cannot be protection for seller on the argument that
consumer did not read the instruction well. This must be communicated very
well.
3) The Right of Choice
The consumer has the right to choose and, of course, marketing does try to
influence that choice. But, in most western markets competition is encouraged
and products should not confuse consumers.
127
SOCIETY AND (4) The Right to be listened
INDUSTRY - The right of free speech is present in all western countries and many eastern
INDIAN AND countries which believe in democracy. Though, do organisations listen to
consumers? In a well-focused marketing organisation such feedback should
GLOBAL TRENDS
be encouraged, and it should be treated as a key input for the future. This
WITH CASES right allows consumers to express their views after a purchase, especially if it
is not satisfactory. When anything goes wrong with a purchase the customer
should expect that any complaint should be fairly and speedily dealt with.
Legal Protection of consumers in India
Protection of consumers is necessary because an average consumer is less
informed and less powerful than the seller. Both voluntary measures and law
can be used to protect consumers.
Anyone who buys goods and avails services for his/her use is a consumer.
Any user of such goods and services with the permission of the buyer is also
a consumer. Government of India has enacted more than thirty laws to improve
the lot of the consumers.
Some of these are — The Contract Act 1882, The Sale of Goods Act 1930,
The Laws of Torts, The Essential Commodities Act 1955, Tine Prevention of
Food Adulteration Act 1954, The Standards and Weights of Measures Act
1976, The Monopolies and Restrictive Trade Practices (MRTP) Act 1969,
Agriculture Produce (Grading and Marketing) Act 1937 and the Consumer
Protection Act 1986.
Despite the plethora of laws and rules, the status of consumers in India remains
deplorable. There are several loopholes in many laws. The implementation of
many laws has been tardy and faulty. The enforcement machinery is lethargic
and corrupt.
Consumers are ignorant of the rights and remedies available to them under
different laws. Even if a consumer is aware of these laws, he does not go to
the courts due to complicated, time-consuming and expensive legal procedures.
In the absence of strong consumer movement, legislation has failed to improve
the lot of the consumers. Further, the various laws provide no direct relief to
the consumer as the focus is on punishment to persons violating the laws.
The Consumer Protection Act, 1986 was enacted for better protection of
consumers’ interests. It provides effective safeguards to consumers against
defective goods, unsatisfactory services, unfair trade practices and other forms
of exploitation.
The law lays down a time frame for disposal of cases. It provides for simple,
speedy and inexpensive redressal of grievances because no fee or other charges
have to be incurred by a consumer. He can make a complaint on a simple
paper without any legal or stamp paper.
Unlike other laws, which are punitive or preventive in nature, this law is
compensatory in nature. It provides for three tier machinery consisting of the
District Forum, State Commissions and National Commission.
128
The law also provides for formation of Consumer Protection Councils. These CONSUMERISM
Councils are expected to promote the cause of consumer protection in every AND CONSUMER
State of India through education.
RIGHTS
The six consumer rights
1) Right to safety,
2) Right to be informed,
3) Right to choose,
4) Right to be heard,
5) Right to redress, and
6) Right to consumer education.
After an amendment in 1993, the applicability of the Act has been broadened
to include paid services like medical services rendered for a charge.
The Act applies to all goods and services unless specifically exempted by the
Central Government. It cover- all sectors whether private, public or
cooperative. The provisions of this Act are in addition to and not in derogation
of the provisions of any other Act.
State Commission is set up by the State Government and its jurisdiction is
restricted to the boundaries of the State concerned.
(i) The State Commission shall consist of a President, who either is or
has been a Judge of a High Court, and two other members. All the
three shall be appointed by the State Government.
(ii) Only those complaints can be filed where the value of goods/services
and compensation claimed is between Rupees twenty lakhs and one
Crore. Appeals against the orders of any District Forum can also be
filed before the State Commission.
(iii) The State Commission, after being satisfied that the goods were
defective, can issue an order directing the opposite party to either
remove the defect or replace the goods or return the price paid or pay
compensation to the consumer for loss or injury, etc.
Any person who is aggrieved by the order of the State Commission can
appeal against such order to the National Commission within 30 days.
Why Indian Consumer need Consumerism a lot.
1. Some goods, some of which are of strategic significance, are short in
supply. Producers exploit the consumer as in the situation of additional
demand, seller and not the consumer becomes the king in the market.
2. In certain products, even if there is no actual shortage, markets due to
oligopoly (market with few sellers) and monopoly (market with one
seller), create an artificial demand by restricting the output so that
they are able to push up the price. This cartel making activities are
looting more to customers in an organised way and this must not be
practiced.
3. Ignorant and uneducated consumers. Lack of formal education is the
129
SOCIETY AND most dangerous in every sector of the society, including in consumption.
INDUSTRY - Customers are ignorant and uneducated about the market conditions
and the accessibility of goods. In such situations, the marketer has a
INDIAN AND
tendency to exploit the customer. The situation is really unfortunate
GLOBAL TRENDS when the even educated people turn out to be ignorant consumers. In
WITH CASES India, there are many such cases.
4. People are very afraid of the legal procedures. People are anxious about
Police and Justice System. Many consumers, to avoid legal advices
and actions because of fear of losing more money and not being given
the appropriate compensation within satisfactory time limits, will not
exercise their rights. People are unaware of the simple procedures under
the Consumer Protection Act.
5. India is a country of low and middle-class income people. Most of
them fight for their “bread and butter” and their attitude is not wasting
time in complexity of the justice system because they have lack of trust
and some aspect of getting very less compensation or no clarification
in terms of compensation is a reason for this.
All these points emphasise one feature. There is hard time and dire need of
good and effective “Consumer Protection.” Such a protection will go a long
way to build a healthy economy. A strong market is made up of strong supply
and demand. Consumer Protection, which is the core of consumerism alone,
can give necessary strength to the demand side in the market, which is generally
biased in favour of the supplier. To strike a balance in the buyer-seller relation,
“consumer protection” plays an important role.
To have an effective consumer protection, a practical reply on the part of
three parties, viz., the business, the Government and the consumer, is essential.
Firstly, the business, comprising the producers and all the elements of the
distribution channels, all have to give due importance and regard to consumer
rights.
1) MRTP act was made to stop monopoly in In Indian market. (True/ False)
2) Consumption is the main aspect of today’s economy. (True / False)
2.5 Let Us Sum up
Today’s economy is run by the consumption, the GDP is based on consump-
tion, the more the consumption and export the bigger the GDP is, there are
and should be many problems associated in near future on this attitude but if
we just talk about present the consumption is dependent on consumers and
their rights must be protected and well managed and if not the seller or the
other selling party has to leave the market. Same way consumers must also
know their responsibilities and provisions to defend themselves.
130
2.6 Answers for Check Your Progress. CONSUMERISM
Check Your Progress 1 AND CONSUMER
1) False. RIGHTS
2) False.
3) True.
1) True.
2) False.
2.7 Glossary
1) CFC: - Chlorofluorocarbons is a gas which harm Ozone layer used in
Refrigeration and other things.
2) Free market: - A market system where demand and supply decides
the equilibrium or prices. There should not be interfere in this system.
3) Fly by Wire System: - An automatic system which keeps planes on
right track and balanced.
2.8 Assignment
1. What is Consumerism? Explain clearly with examples.
2.9 Activity
Search and make short notes on how business social responsibilities do?
2.10 Case study
Read the cases from the books mentioned in Further Reading.
1) O. C. Ferrell, John Fraedrich, Linda Ferrell - Business Ethics_ Ethical
Decision Making & Cases, 10th Edition (2015)
2) William H. Shaw - Cengage Advantage Books_ Business Ethics_ A
Textbook with Cases -Wadsworth Publishing (2010)
4) Ananda Das Gupta (auth.) - Business Ethics_ Texts and Cases from
the Indian Perspective-Springer India (2014). (For cases also)
5) W. Michael Hoffman, Robert E. Frederick, Mark S. Schwartz - Busi-
ness Ethics_ Readings and Cases in Corporate Morality-Wiley-
Blackwell (2014). (For cases also)
131
SOCIETY AND
INDUSTRY - Unit INDUSTRIAL SICKNESS AND TRADE UNIONS
INDIAN AND 3
GLOBAL TRENDS
WITH CASES : UNIT STRUCTURE :
3.2 Introduction
3.3 Industrial Sickness
3.4 Trade Unions
3.5 Let Us Sum up
3.7 Glossary
3.8 Assignment
3.9 Activities
3.10 Case Study
a. Concept of Industrial Sickness.
b. Concept of Trade Unions.
3.2 Introduction
This chapter will discuss the Industrial sickness and trade Unions. Industrial
Sickness is dangerous for any country because it has capability to affect the
other industries in the country. There are many reasons for an industry to get
sick there are reason which man made as managerial decision flows, labor
issues, high input prices etc. these all causing losses for several years become
sick industry. This Unit will give you basic idea about what is industrial sick-
ness and why it happens? And how to prevent the Industrial Sickness?
The Trade Unions are representative of labors which try to solve the prob-
lems of labors, the main aim of trade unions is to make sure that labors are
getting what they must get for their hard work, they must get the proper
wages, salaries, proper working place and at least some social benefits from
the employer side.
This chapter will give the idea about what Trade Unions must do and what
should not do? Trade union have bigger responsibilities as they have thou-
sands of people which follow their decisions and if these decisions becomes
wrong the whole society gets wrong messages.
3.3 Industrial Sickness
Industrial sickness is a common problem of the market oriented economies,
132
the market system easily shows the problems if any prevailing in the market INDUSTRIAL
while in the pure socialism people continuously feel lack of goods and services, SICKNESS AND
quality, option and choices are mostly absent and at last government give up
TRADE UNIONS
and goes for the market oriented economics at least on the economic level
may not be on the political level. .e.g. China is market oriented economy but
political system is not democratic. So in the first case industrial sickness is
very much visible while in the second case it may or may not be that much
visible because of in latter’s situation government supports the industry at
higher extent.
Industrial sickness usually refers to a situation when an industrial firm performs
poorly, incurs losses for several years and often defaults in its debt repayment
obligations.
The Reserve Bank of India has defined a sick unit as one “which has suffered
a cash loss for one year and is tend to making losses for the current year as
well as in the following year and the unit has an imbalance in its financial
structure, such as, current ratio is less than 1: 1 and there is worsening trend
in debt-equity ratio.” The State Bank of India has defined a sick unit as one
“which fails to generate an internal surplus on a continuous basis and de-
pends for its survival upon frequent infusion of funds.”
Before the realisation of Sick Industrial Companies Act (SICA) in 1985,
there was no understanding on the standards to be used to define an indus-
trial unit as sick. According to SICA, as amended in 1992, an industrial com-
pany can be confirmed as sick which has at the end of any financial year
accumulated losses equal to or exceeding its entire net worth. It may be
noted that Sick Industrial Companies Act (SICA) applies to registered com-
panies which have been in existence for at least 5 years.
Small scale industry is called sick or weak if these conditions are prevailing.
1) Cash losses are equal to 50 per cent or more of its peak net worth
during the last five years
2) It has dodged in meeting four consecutive instalments of interest.
Classification of Industrial sickness
1) The serious sickness which is triggered because of external or the
factors which are not in the control of the owners or the promoters of
the company.
2) The initial mistake of establishing business which was not viable though
it was established so it is obliviously prone to fail or become sick.
3) The industry become the victim of the wrong secession taken by the
top management. So the company fails or becomes sick unit.
Case 1) the Failure of Kodak
Kodak, a technology company that dominated the photographic film market
during most of the 20th century. The company blew its chance to lead the
digital photography revolution as they were in denial for too long.
Steve Sasson, the Kodak engineer, actually invented the first digital camera
133
SOCIETY AND back in 1975. “But it was filmless photography, so management’s reaction
INDUSTRY - was, ‘that’s cute—but don’t tell anyone about it,” says Sasson. The leaders of
Kodak failed to see digital photography as a disruptive technology.
INDIAN AND
A former vice-president of Kodak Don Strickland says: “We developed the
GLOBAL TRENDS
world’s first consumer digital camera but we could not get approval to launch
WITH CASES or sell it because of fear of the effects on the film market.” The management
was so focused on the film success that they missed the digital revolution
after starting it. Kodak filed for bankruptcy in 2012. The Kodak failure sur-
prised many.
Case 2) Failure of Wang Laboratories
There are many companies which invented new technologies but failed to
market it as we saw from the above case of Kodak there is another more
classical case of failures of Wang laboratories in USA.
Wang was the main trainer and also owner of this companies. Wang invented
Magnetic Pulse memory technology which was essential for the digital age of
the computers. He was first to realise the capability and the use of calculators
in the market. His company become a 2 Billion US dollar company than was
compared with IBM and more value than apple company. But Wang labora-
tory sold the patents of the magnetic pulse technology to IBM, in 1950 Wang
sold 25% of shares to a machine tools company in just 1.5 Million US $, later
he wrote and retreated on this decision. This company put the competitive
computer in the market against the no 1 company IBM but his hatred to-
wards IBM made him to make wrong decision, he was famous for keeping a
chart in his coat always which showed when Wang will replace the IBM. This
was a fatal decision of Wang Laboratories and it did not adopted a flexible
business just to remain in the market.
Case 3)
One highly successful company that failed? Nokia, a company founded in
Finland was the first to create a cellular network in the world. In the late
1990s and early 2000s, Nokia was the global leader in mobile phones.
With the arrival of the Internet, other mobile companies started understand-
ing how data, not voice, was the future of communication. Nokia didn’t grasp
the concept of software and kept focusing on hardware because the manage-
ment feared to alienate current users if they changed too much.
Nokia’s mistake was the fact that they didn’t want to lead the drastic change
in user experience. This caused Nokia to develop a mess of an operating
system with a bad user experience that just wasn’t a fit on the market.
The company overestimated the strength of its brand and believed they could
arrive late in the smartphone game and succeed. In 2007 Steve Jobs launched
the iPhone, a phone without a keyboard, which was revolutionary at the time.
Really, watch the video and listen to people losing their minds the first time
the watch someone using a touchscreen. In 2008 Nokia finally made the de-
cision to compete with Android, but it was too late. Their products weren’t
competitive enough.
134
Why companies get Sick? (Reasons) INDUSTRIAL
There can be many reasons for companies going sick at different stages of SICKNESS AND
development. We can classify the reason as bellow TRADE UNIONS
A) Sick by Inception: -
These are the institutions which are sick by birth because of various
reasons. These are the factors which are responsible…
1) Less experience, selection of wrong project, the lack of planning, these
are few reasons why companies fail.
2) Planning regarding funds is very important task, company’s fail be-
cause of lack of funds or wrong investment decisions or investing
funds in a field where it was less required and investing less where it
was more required. This is common mistake for new start-ups.
3) Many times project taken by companies are complex in nature and
required to maintain long supply chain for the equipment, timely de-
livery of these equipment is necessary for the timely completion of the
project and if it does not happen the cost increases and creates prob-
lem for companies.
4) There are many other factors as location factors or choosing wrong
places, less skilled labour, not using appropriate technologies, lack of
raw materials, lack of transportation facilities or the infrastructure fa-
cilities, competition from the already existing rivals and possibly their
unfair means to drive out new comer from the market and less under-
standing of market working etc. can be the reasons of failing of new
born companies.
B) Companies become sick after a while
1) Management inefficiency
The biggest cause of industrial sickness is the managerial inefficiency. Lack
of professional management or experienced management and the existence
of hereditary management is an important cause of industrial sickness. Inef-
ficient management results in inability to perceive things in proper perspec-
tive devoid of routine considerations. Inefficient management is also unable
to build up good team and inspire confidence for an organised collective
effort and takes autocratic and high-handed decisions. Management some-
times also do unwanted expansion without much thinking or capabilities,
wrong decisions in acquisition, faulty deals, IPR cases etc.
2) Wrong choice in technologies
If the promoters use wrong technology, results are bound to be unsatisfac-
tory. Many industrial units, especially in the small-scale sector, do not seek
professional guidance in installing the correct machinery and plant. If the
machinery and plant installed turn out to be defective and unsuitable, they
are bound to suffer losses and become sick and non-viable.
Case 1)
The best case for choosing wrong technology is the case of GM (General
135
SOCIETY AND Motors), when GM tried to do over automation of Hamtramck plant to manu-
INDUSTRY - facture cars which turned into disaster and many robots worked horribly wrong,
many robots which were supposed to colour cars but they were doing colours
INDIAN AND
here and there in the assembly line, welding robots were welding somewhere
GLOBAL TRENDS else rather than cars etc., company tries to correct this software problem
WITH CASES many time but it re-emerged and did hefty loss to GM and the whole project
of those cars overran in terms of cost and cars became costlier ultimately and
sales was very less. This was one of most expensive failure in the automobile
industry.
3) Wrong or ineffective marketing
The marketing techniques must be effective and should be able to convince
the people that the said good has the value which has been charged or com-
pany can charge higher prices because of the quality of the good or services.
Many times it has been observed that the purpose of advertisement was not
achieved rather it affected negatively. Advertisements must be done in a way
so the good can be matched with the beliefs, culture of the people and it
should look new also but not alien to the population for whom it has been
designed.
External Factors
1) Recession in the world market or in local market
Sometimes a general depression hits industrial units. This is reflected in lack
of demand for industrial products in general. An overall slowdown in eco-
nomic activities affects the performance of individual projects. Improper de-
mand estimation for the products to project lands the industrial units in diffi-
culties. The 1930 great depression, after World War II the situation of Ger-
many and 2007-08 recession, all of these can be considered as an external
factors on whom owner or management has no control.
2) Higher prices of inputs
When the costs of manufacture are high and sales realisation low, the indus-
trial unit cannot stand in the market. The cost of inputs must be lower to gain
fair profit but many time political, trade and military conflicts complicates
this delicate balance. E.g. Gulf war between Iraq and US created such a situ-
ation that oil price hiked so much which created Balance of Payment Prob-
lems and Indian did LPG (Liberalisation, Privatisation, and Globalisation)
because oil is a most essential raw material for the whole economy. There are
many other cases like China Denied Supply of Rare Earth material to Japan
on the island in The South China Sea.
3) Changes in the Government Policy
The industrial sickness is also caused by certain changes in policy designs of
the government. These frequent changes affect the long-term production,
financial and marketing planning of an industrial unit. Changes in Govern-
ment policies regarding imports, industrial licensing, and taxation can make
viable units sick. For example, liberal import policy since 1991 has rendered
many small-scale industrial units sick.
136
What to do to save industries (Firms) from sickness? INDUSTRIAL
Industrial sickness is not just a single phenomenon it has Multifood effects SICKNESS AND
on whole economic system of country. The Tiwari Committee says that In- TRADE UNIONS
dustrial sickness has negative effects not only on production but also on
employment then on the loss of jobs and ultimately on the consumption and
lastly on the whole economy. The other stakeholders which suffers from this
are financial institutions which only add into problems and make it more
serious so the industrial sickness is not just a single phenomenon it is a chain
reaction for the whole economy. Measures must be taken to solve this prob-
lem as soon as seen in the economy. They are as follows
1) Cooperation among the financial institutions
Since commercial banks provide working capital, they are in a position to
know about the working of industrial concern. But assistance from term-
lending institutions is also essential for rescue operations.
2) Government agencies role
All government agencies, both regulatory and promotional, must join hands
to restore sick units to health.
Full cooperation from various suppliers,’ unsecured creditors and other stake-
holders, particularly from the employees, is also essential to take the concern
out of the difficulties in which it is involved.
Government Act 1956 and The industrial development and Regulation Act
1951 gives the power to the government to collect the data about the firms
and take measures to resolve their problems and try to solve their manage-
ment problems.
3) Valuation and marketing
The banks should verify on a regular basis the valuation of inventories both
in terms of quantity and price. This would prevent over-borrowing on the
hypothecation of inventories.
There should be well organised and scientific marketing by the project pro-
moters otherwise launching of a project will be a leap in the dark. Good
marketing arrangements will prevent industrial sickness.
4) Improving technology and labour relations
If the sick unit is to be restored to health, old and obsolete machinery and
outdated technology should be discarded at the earliest.
Restrictive labour and unreasonable trade unions are great obstacles. Im-
proving labour relations will go a long way in curing industrial sickness.
5) Make efficient management and incentives
If essential incompetent management should be replaced. The key to indus-
trial health lies in alert and efficient management. The management should
show a cool approach, patience and perseverance, courage and ability to
steer in bad weather.
It is essential to offer performance encouragements to the executives and the
137
SOCIETY AND workers to encourage them to put in their best efforts. This will be quite
INDUSTRY - helpful in curing industrial sickness.
INDIAN AND 6) Attitude of government
GLOBAL TRENDS At the time of industrial sickness the government agencies should adopt a
WITH CASES kind and understanding attitude so that the problem is not serious but moves
towards a solution instead.
Conclusions
In view of the significant industrial illness it would be essential to form a task
force consisting of competent and knowledgeable executives in various
branches of business to go into the case and monitor recovery. Restoration of
sick units is not an easy and simple affair. An all-round effort is necessary to
root out the disease, first necessary step is the identification of sick units
which can be made viable through renovation, expansion, and diversification.
Units beyond recovery should be wound up.
The second step is the rebuilding of management. Where the management is
reluctant or unable to play its proper role, the financial organizations and the
government agencies should intervene to fulfil their large social responsibility
of ensuring efficient use of national resources. Since industrial sickness is due
both to external causes, e.g., general recession, and internal causes like dis-
honest and inefficient management, the remedy must also lie in both direc-
tions.
With a view to meeting the situation, the early warning system is strength-
ened. Viability studies should be undertaken to identify the sick units includ-
ing creeping sickness which could be eventually restored to health with addi-
tional financial aid on liberal and easy terms. To an extent increase in indus-
trial sickness is inevitable result of the very process of modernisation or tech-
nological development industry. It is natural that the units which cannot keep
pace with the ongoing technological change will become sick, they should be
allowed to wind up.
1) Industrial Sickness can only be seen in Market oriented Economies.
(True / False)
2) Cash losses of 50% of net worth of a firm is a condition of sick industry.
(True/ False)
3) The mistake of Kodak was not to take its new invention in market.
(True / False)
4) Failures of An Wang laboratories can be attributed to wrong managerial
decisions. (True / False)
3.4 Trade unions
Meaning
A Trade Union has been defined as a continuous association of workers de-
signed for the resolution of conserving and improving their circumstances of
employment.
138
The Indian Trade Union Act 1926 says about the Trade Union as “Trade INDUSTRIAL
union means any combination, temporary or permanent, formed primarily SICKNESS AND
for the purpose of regulating the relation between workmen and employers,
or between workmen and workmen or between employers with employers,
TRADE UNIONS
or for imposing restriction action on the conduct of any trade or business
activity and includes any federation of two or more trade unions”
So the Trade union usually refers as the organisation whose main goal is to
protect the rights of the workers and make sure about their welfare. The
Trade Union must take care that they are made to work well with the thou-
sands of the helping hand in line with the trade unions and do not using that
manpower to hamper the progress of the country or becoming the hand of
foreign organisation.
Their aim is not merely to fight against the wage-cuts but also to fight for
higher wages. A temporary organisation or a mere strike committee cannot
be considered a trade union. It must be a continuous association.
Functions of Trade Unions:
1) Trade Unions and Wages:
Trade unions are formed for the welfare of the labours and workers and they
will have to take care of the wellbeing of brothers in band and wages are one
very important aspect in which trade unions have to negotiate with the em-
ployers. The Trade unions must demand what the labours are liable to get but
over demands should not be done with the overestimations of the profit of
the employers. The factories are equally important because they provides the
ultimate employment to the labours. The lock downs and non-productive
and destructive activities must not be done.
2) Trade union and demand for the safety
Trade union can play the pioneer place in the assuring the safety and keeping
their working place workable. Trade unions can be a life saver in this aspect
if the industry is not providing the appropriate safety measures to labours or
workers or employees. The working condition also affect the marginal pro-
ductivity of the workers if the working condition is good the production
would be speedy and it will benefit every party in this game.
3) Trade union must promote the cultural heritage of the India and pro-
mote it in the work place. Trade unions must educate workers and labours
for better productivity, for better understanding of the technical issues of the
factories so the workers participation in the decision making can be opened
for the workers and they get important place in the working environment.
This will create their own identity in the industry
4) Trade unions are like the parents for the workers, they teach them,
they educate them, they train them and above all they teach them how to
work in discipline, this is most important aspect to solve the pertaining any
problems. This also set the higher standard of quality.
139
SOCIETY AND Social Responsibilities of Trade Unions
INDUSTRY - The Trade unions have power to affect the working, management, decisions
INDIAN AND of the working place as well as the society also. The trade union teach labours
how to live in the society also because what they teach to behave in the
GLOBAL TRENDS
working place so the same will be done with the society. Trade unions should
WITH CASES not use their strength against the welfare of the society, blockade, violent
destructions, demolishing law and order situation, must not be done with
hands of Trade Unions or any institution affiliated with them or under their
guidance.
The Trade union must fulfil these aspects
A) Promotion of the national integration, and national values and cul-
tures.
B) To help the frame socio-economic policies and be the part of nation
building.
C) To have a sense of responsibility and towards the industry and to the
community.
Limitations and Problems of trade union in India
1) Limited say: The trade unions form a very small groups, as India is
mostly driven by organisation sector as more labours are unorganised,
so the Trade unions have very less say.
2) Small size and more numbers: the number of trade unions are increas-
ing and already existing trade unions are breaking into other small
unions. The size is the strength for the trade unions are most important
and that is the deciding point that their demand will be satisfied or not,
depends on the size of the trade unions. The internal problems in the
trade unions, weak bargaining power and maintaining good relations
becomes harder.
3) Political infiltrations: Political influence is not a good thing for the
smooth working of the Trade Unions. Political parties see their own
narrow political interests many times and does not see the national
interest many times. This defies the very fabric of making the Trade
Unions.
As observed by some observers about the politicisation of trade unions
“The introduction of politics in to the trade union movement and its
domination by leaders of political parties have shattered the unity and
strength of the trade unions movement in the country. The Indian trade
union movement has, therefore, becomes organisationally weak and as
an institution, it may be able to effectively promote and protect the
interests of the workers, unless and until the unions are scientifically
management, placing the genuine economic interests of the workers
uppermost in their plan of action.”
4) Less funds: The Indian labours have very low income so the full time
working of any trade unions so who will say or who will represent the
140
trade union permanently? This question arises. The low income work- INDUSTRIAL
ers cannot be a part of regular subscription of the trade union. SICKNESS AND
5) Less education and integrity: Lack of education in the workers is the TRADE UNIONS
hindering factor in the growth of Trade Unions, this becomes the prob-
lem of labours to understand technical, managerial issues in the work-
ing area, and this also makes labours less inclined towards changes.
Less integrity comes from the top level as the leaders use the funds,
management and union properties for their personal uses which cre-
ates dissatisfaction among the lower level of the members and this
creates disintegrate among the members.
1) Trade Unions main aim is to defend employees against any decision
which decreases welfare of labors. (True/ False)
3.5 Let us Sum up
There are mainly three views on economic systems and mainly only two. One
is market oriented system which is prone to variations of the market and
industrial sickness one of the characteristics which is seen in these market,
this can be seen in the countries who have adopted social system but there
government takes care of everything and things does not go out from the
hands of government while in the free market economy it is individuals of
group of individual (Private), feels the burn of Industrial sickness. Relations
between workers and employers must remain healthy and smooth, changing
technological environment also poses threat to this silver line and firms must
solve this problem with interaction with all stockholders including trade unions.
3.6 Answers for Check Your Progress.
1) True.
2) True.
3) True.
4) True.
1) True.
3.7 Glossary
1) Marginal Productivity: - how much of output has been increased by
adding one more unit of labor.
3.8 Assignment
What are the social responsibilities of Trade unions?
Why does industrial sickness happens?
3.9 Activity
Search about the famous trade union and government struggle? E.g. Marga-
ret thatcher and trade union struggle in England.
141
SOCIETY AND 3.10 Case study
INDUSTRY - Read the cases from the books mentioned in the Bibliography.
INDIAN AND 3.11 Further reading
GLOBAL TRENDS 1) (Industrial Revolutions) Trevor Colling, Mike Terry - Industrial Rela-
WITH CASES tions_ Theory and Practice-Wiley-Blackwell (2010)
2) John Purcell (auth.) - Good Industrial Relations_ Theory and Practice-
Palgrave Macmillan UK (1981)
4) Tom Barnes - Making Cars in the New India_ Industry, Precarity and
Informality-Cambridge University Press (2018) (For Cases also)
142
Unit WORKER’S PARTICIPATION AND
4 INDUSTRIAL RELATION
: UNIT STRUCTURE :
4.2 Introduction
4.3 Worker’s Participation in Management (WPM)
4.4 Industrial Relations and Disputes.
4.5 Let Us Sum up
4.7 Glossary
4.8 Assignment
4.9 Activities
4.10 Case Study
a. Concept of workers Participation in Management.
b. Concept of Industrial Relation.
4.2 Introduction
This unit will explain the basic concept of Worker’s participation in business
and that is only possible when labors are experienced and educated to under-
stand the changing technological comes; dynamics and complex business sys-
tem. The more educated and experienced labor the more participation in
business can be achieved. Frankly very industries are interested to have more
labor participation. There are some examples of industries explained below
which proves that sometimes labors have saved their own companies, this
unit will explain the level of participation and other labor participation in
management related aspects.
Industrial relations and Disputes are important aspects to understand. The
question comes; why we should study it? The answer is it does affect the
strategic capability of the country. E.g. recently HAL (Hindustan Aeronau-
tics Limited) a government owned company which manufactures and does
research in the civilian and military manufacturing of planes and other sub-
systems. The employees of HAL went on strike on various issues mainly
because of wages, they got support of OFB (Ordinance Factory Board) work-
ers also which again hampered the supply of ammunition to the armed forces
of India which shows how serious these industrial relations are? This is just a
single example but there are many other examples which shows that Indus-
trial relations must remain harmonious and every stakeholder must be satis-
fied and no party should take false advantages of their position.
143
SOCIETY AND 4.3 Worker’s Participation in Management (WPM)
INDUSTRY - Definition
INDIAN AND The concept of worker’s participation in management has become very popular
GLOBAL TRENDS these days, and now there are cases where few bigger companies were rescued
WITH CASES and managed by employees. The educated and technological advantages have
given a capability that employees can run the institution or companies as they
have experience from grass root level.
The concept of employee owned companies are the advanced form of the
worker’s participation, this concept is much older in US and many advanced
countries but it has not yet taken off in India in a bigger way.
In the past if we see the very famous company Carl Zeiss was once owned
and managed by the employee trust and this lasted almost more than 70 years
which changed in 1991 only this was a significant example which created
trust in the worker’s management skills.
There are many cases of companies being sold to the employees from the
single family owned business. E.g. La Ceramica was given to its employees
by the Bucci family as long as 1873. This is much older case of employee
ownership and management. Same was the case of John Lewis and Baxi
companies.
Let us also go through some vital definitions of Worker’s participation in
management.
According to Keith Davis, “Workers’ participation refers to the mental and
emotional involvement of a person in a group situation which reassures him
to contribute to group goals and share in responsibility of achieving them”.
In the words of Mehtras “Applied to industry, the concept of participation
means sharing the decision-making power by the rank and file of an industrial
establishment through their representatives, at all the appropriate levels of
organization in the entire array of managerial action”.
Characteristics of Workers participation in management
1. Participation implies practices which increase the scope for employ-
ees’ share of influence in decision-making process with the assumption
of responsibility.
2. Participation assumes willing acceptance of obligation by workers.
3. Workers participate in organisation must not be seen as individuals but
as a cluster through their representatives.
4. Worker’s contribution in management differs from collective bargain-
ing in the sense that while the former is based on mutual trust, infor-
mation sharing and shared problem solving; the latter is essentially
based on power play, pressure tactics, and negotiations.
5. The basic rationale for worker’s participation in management is that
workers participate their Labour and their fates to their place of work.
So, they contribute to the outcomes of organization. Hence, they have
a legitimate right to share in decision-making activities of organisation.
144
Objectives of Worker’s Participation in Management WORKER’S
1. Surge in productivity for the advantage of all concerned to an enter- PARTICIPATION
prise. AND INDUSTRIAL
2. Satisfaction of worker’s wish for expressiveness in the matters of en- RELATION
terprise management.
3. Making employees better manage their roles in the organisation.
4. In ultimate sense, the objective of WPM in India is to achieve organi-
zational effectiveness and the satisfaction of the employees.
5. Promote mutual understanding between management and workers,
i.e., industrial harmony.
6. Establish and encourage good communication system at all levels.
7. Create and indorse a feel of brotherhood among labours.
8. Help handle confrontation to change.
9. Persuade a sense among workers to contribute their best for the cause
of organization.
10. Create a sense of commitment to decisions to which they were a party.
The intensity of participation
Now we have known Worker’s Participation so the question is to what de-
gree workers can share in decision-making process. In other words, it is
important to know the extents of co-determination in an organisation.
This way if we see, Mehtras has suggested five levels of workers’ participa-
tion ranging from the minimum to the maximum. Since these levels of work-
ers’ influence the process and quality of decision making in an organisation.
We are therefore highlighting here these levels briefly ranking them from the
minimum to the maximum level of participation.
Informative Participation of Workers.
This shows the management’s information distribution with workers on things
which are directly related with labours. Balance Sheet, production, economic
conditions of the plant etc., are the examples of such items. It is important to
note that here workers have no right of close scrutiny of the information
provided and management has its prerogative to make decisions on issues
concerned with workers.
Consultative Participation of Workers.
In this type of participation, workers are consulted in those matters which
relate to them. Here, the role of workers is restricted to give their views only.
However the acceptance and non-acceptance of these views depends on man-
agement. Nonetheless, it provides an opportunity to the workers to express
their views on matters involving their interest.
Associative Participation of workers.
Here, the role of the workers’ council is not just advisory unlike consultative
participation. In a way, this is an advanced and improved form of consulta-
tive participation. Now, the management is under a moral obligation to ac-
knowledge, accept and implement the unanimous decision of the council.
145
SOCIETY AND Administrative Participation of Workers.
INDUSTRY - In the administrative participation, decisions already taken are implemented
INDIAN AND by the workers. Compared to the former three levels of participation, the
degree of sharing authority and duty by the workers is absolutely more in this
GLOBAL TRENDS
participation.
WITH CASES
Extensive Participation of workers.
Here, the decisions are taken jointly by the management and the workers of
an administration. The fact is, this is the ultimate level of workers’ participa-
tion in management.
Conclusion
The concept of workers participation in management is becoming popular
but there is no common understanding among the people and administration.
Workers participation’s aim is to include workers into the various institu-
tional works but that is not getting very well everywhere. There are many
hindering factors such as education factor because if the workers are more
educated they can contribute more in the firm and if they have more techno-
logical knowledge they can contribute in top level management but if it is not
then the workers cannot contribute very well in the development of firm and
industry. This depends on the how much welfare of the labours have got, how
much education, health, leisure, social services so that workers and their com-
ing generations can grew. Government and society with the infrastructure
development, organisational structure and resources can create a strong, very
independent and multi skilled workforce.
1) Employee owned companies are in fashion in advanced countries. (True
/ False)
2) Worker’s participation is more productive as it shows the right roles
of workers in the business. (True/ False)
4.4 Industrial Relations and Disputes
Industrial Relation (Disputes) (Introduction)
Industrial disputes or the bad relation between employers and employee is a
serious concern for any country. The industrial sector is interrelated and if the
one industry falls its effects Multifoods and reaches to the other industries
also. The industrial relations are very important and so to maintain it there is
government making different laws regarding the relation between the both
main parties and other stakeholders, there are trade unions which takes the
charge of maintain the wellbeing of the workers in every way, there is society
which decides what are the best practices for the business and as well as
whole society.
Meaning of Industrial Relation
The meaning of the industrial relation is very broad but if we define the indus-
trial relation as it is very complicated web of the relation between employees
and employers, employee and employee and employers to employers and
146
relation of all of these three factors’ relation with state and other stakehold- WORKER’S
ers. The relation is not complex among these factors till the time we do not
PARTICIPATION
add the regulation for minimum wages for the labours, working condition,
exit policies, social services and most important is when it comes to share AND INDUSTRIAL
some percentage of profit with the society, use it for the wellbeing of work- RELATION
ers.
In the words of Lester, “Industrial relations involve attempts at arriving at
solutions between the conflicting objectives and values; between the profit
motive and social gain; between discipline and freedom, between authority
and industrial democracy; between bargaining and cooperation; and between
conflicting interests of the individual, the group and the community.
Meaning of Industrial Disputes
The Section number 2 of the Industrial Dispute Act, 1947, “Industrial dis-
pute means any dispute or difference between employers and employers or
between employers and workmen or between workmen and workmen, which
is connected with the employment or non-employment or the terms of em-
ployment or with the conditions of labour of any person” Industrial disputes
are of symptoms of industrial unrest in the same way that boils are symptoms
of a disordered body.
In the industrial relation there are two words dispute and unrest these words
are used as synonyms but actually they are not the dispute or the unrest is the
psychological state which be the real phenomenon and it may not be the true
phenomenon, while the dispute is the hard core and the based on the proofs
and the facts.
Causes of Industrial Disputes
The developing countries are more prone to be victims of the Industrial Dis-
putes because of less wages, less financial capabilities of the firm, less ar-
ranged legal laws, political problems makes more possibilities of industrial
disputes.
Economic issues
1) Conflict of Interests
All the issues are emerging from this one point of conflicts of interests, can
there be the change in what you want to achieve? For the labour it may be
different and for the employers goal post may be different, most of the time
the goals are contrast in nature.
Workers demand more wages and industries refuse this and this becomes the
issue, sometimes it is genuine and sometimes it is not genuine. There are few
examples of how industries fail? The best example is the textile industries of
the Ahmedabad city. There were two- three main reasons for the failure of
these factories. The first reason was over employment means more labour
than what was needed. The second reason was no change in the technologies
because of the first reason and the last reason was even though all these
situation there was demand for more wages which ultimately failed these
factories.
147
SOCIETY AND 2) Wages
INDUSTRY - The demand for wage increase is the prime-most cause of the industrial dis-
INDIAN AND putes. A large number of strikes are being organised to raise a voice against
the rise in prices and cost of living. Firms may acknowledge their demand but
GLOBAL TRENDS
many times firs do not because of the fear of losing the profit ratios or they
WITH CASES may be not in a position to increase the wages what they are paying now.
These types of problem arises most in the developing and under developing
countries.
Case 1)
The Maruti Suzuki conflict in 2011/12 was arguably the highest profile in-
dustrial dispute to emerge in India since the Mumbai textile workers’ strike
over 35 years ago. This was due, in part, to Maruti’s standout role as India’s
largest passenger car manufacturer, and its historical role as the pioneer of
the local industry’s modernisation. It is also due to the ferocity and scale of
the conflict, with simultaneous strikes occurring in supply firms in the region,
and major disruptions to production and profits in the sector.
The immediate roots of the 2011/12 conflict lie in the workplace divisions at
the Manesar facility. Prior to the dispute, Maruti management had maintained
a decade-long policy of hiring new workers through numerous labour con-
tractors who acted as labour market intermediaries. This practice was trans-
planted into the Manesar facility after its establishment in 2007. It divided the
workforce into a core of permanent or ‘regular’ workers who received rela-
tively high wages and generous employment benefits and a larger group of
‘contract’ workers whose employment was managed by labour contractors.
These workers received lower wages and far fewer employment benefits.
Tensions at the Manesar site erupted over the treatment of workers and the
perception that many who work in these different employment categories
were being utilised for similar production-line roles, despite large disparities
in wages and conditions between regular and non-regular workers. These
tensions led to demands to close these disparities, to convert the roles of
many non-regular workers into regular or ongoing employment – that is, to
‘regularise’ workers’ employment – and to form a trade union for all workers
at the facility, known as the Maruti Suzuki Workers Union.
The campaign, and Maruti’s refusal to bargain over several core issues, led to
a drawn out process of industrial conflict: a strike in June 2011, which se-
verely disrupted production and led to the reinstatement of workers sacked
for their union activities; a second strike in August 2011 lead to a round of
mass sackings; a 12- day factory occupation in October 2011 ended in large
termination payments for suspended union leaders, large pay rises for all
workers, and company recognition of the MSWU membership for regular
workers in March 2012; a further round of sackings in April and May 2012;
and, finally, a violent clash involving workers and managers which led to the
death of HR manager, Awanish Kumar Dev. This tragedy marked the end of
this drawn-out industrial conflict and spelled disaster for the majority of work-
ers at the Manesar facility. Nearly 2,000 workers lost their jobs, 148 workers
148
were imprisoned and awaiting trial for several years; in March 2017, 31 former- WORKER’S
Maruti employees were convicted with a range of criminal offences. Thir- PARTICIPATION
teen of these workers were handed life sentences for murder.
AND INDUSTRIAL
3) Dearness Allowance and Bonus
RELATION
The inflation situation inflicts the higher cost and increasing the expenditure
of worker. This was the main cause of the demand of dearness allowance by
the workers to compare their wages with the rise in prices.
Both the quantum and the system of bonus sum have led to many disputes.
There is an increasing feeling among the workers that they should have a
greater share in the profits of the concern and this fact has not been recognised
by the employees and non-acceptance of this fact has been a source of fric-
tion among employers and employees.
4) Working Condition and Working Hours
The working situations in Indian industries are not proper. There are not
many provision of water, heating, lighting, safety etc. Working hours are also
greater. The demand of palatable working conditions and shorter hours of
work are also responsible for labour disputes.
5) Modernisation and Automation of Plant and Machinery
The effort at upgrading and introduction of automatisation to replace labour
has been the key reason of disputes in India. Workers go on strike, off and
on, to resist rationalisation and automation.
6) High Industrial Profits During and after the world wars, prices of the
goods went up and the industrialists made enormous profits. In order to get
share in the wealth of the industry, it unsurprisingly led to the anger on their
part (workers). The better profits also led to the demands of higher wages
and bonus. Now in the changing world, concept of labour has changed con-
siderably. They think themselves as a partner of the industry and demand
their share in the profits.
7) Denial of Recognition to Trade Unions
If the employer are not able to identify the trade unions or to identify the rival
union for representation, insult of trade union leaders by the employers are
some of the examples of autocratic managerial attitude worth mentioning as
the causes of industrial disputes. The attitude of employers towards the labour
associations had never been sympathetic. They want to divide them and rule.
Moreover, the management is generally not eager to talk over the disagree-
ments with the workers or workers’ representatives or state it as ‘arbitration’
even though the workers are willing to do so.
8) Defective Recruitment Policies
The staffing practices in Indian industries are faulty. Staffing is usually made
by the suppliers who exploit the workers and suppress their individuality.
The faulty campaign, devaluation, transfer and appointment procedures en-
courage dissatisfaction among workers. The Maruti Suzuki case can be re-
ferred for this point.
149
SOCIETY AND 9) Defective Leadership
INDUSTRY - Unproductive leadership is also the important causes of disputes. Leadership
INDIAN AND must inspire workers to work harder and efficiently. The problems of work-
ers must be understood by the leaders and addressed that can create an im-
GLOBAL TRENDS
proved environment in which possibility of disputes goes away.
WITH CASES
Some external Factors
There are some external factors which affect the industrial peace, political
factors are one of the most important factor which can cause unrest or dis-
putes for many reasons.
Case 1)
One infamous example of this inter-regional competition concerns the Indian
OEM Tata Motors and its investment in small-car production in Sanand, near
the city of Ahmedabad in the western Indian State of Gujarat. Tata began
producing a cheap small car, called the Nano, at its Sanand assembly plant in
2010. Four years earlier, the Nano had been earmarked for production at a
new assembly plant in the town of Singur, over 2000 km to the east of Gujarat,
in the State of West Bengal. The West Bengal State Government, at the time
the Communist-led Left Bloc, used land acquisition laws to forcibly acquire
1,000 acres of village land around Singur. This was strongly opposed by
many local landowners, political activists, and political opponents of the Com-
munists, especially by the Trinamool Congress Party which used the contro-
versy to win the elections and form the government in the State five years
later. In October 2008, Tata announced it was shifting the proposed plant to
Sanand. According to various media reports, Narendra Modi, then Chief
Minister of Gujarat, sent an SMS to Tata Group chairman Ratan Tata on the
day he decided to quit West Bengal, with the simple message: ‘Suswagatham’
(welcome). The controversy over Tata’s investment in Sanand is a high-pro-
file example of how conflict can spread from the social interests of communi-
ties and the commercial interests of firms to the politics of the State.
Conclusion
Industrial disputes are the hindering forces for the growth and the develop-
ment of the firm, industry and country ultimately. Most of the reasons are
man made and comes from the wrong decision taken by either employer or
employee or the supportive organisations or any other factors. The important
point is there are laws and regulations related to how labour will be treated,
their work environment, welfare, social services and there are responsibilities
for both labours and employers but there is another thing, that thing is bad
intentions of any of the factors mentioned above and if this is their there are
hacks and loopholes which any factor can take advantages. Of course gov-
ernment and society should try to fill the loopholes so that there should not be
the another Bhopal Gas kand or any other industrial disaster or disputed like
in Singur (WB) or in Manesar (Haryana) and there will be new SOPs (Stan-
dard Operational Procedures) but till the all stakeholder will not understand
the common problems of each other and will be graceful for each other this
problems will persist in this world.
150
Check your progress 2 WORKER’S
1) Industrial Dispute is the psychological state of dissatisfaction it is not PARTICIPATION
based on evidences. (True/ False)
AND INDUSTRIAL
2) Use of old technology was one of the reason of why Textile industry
RELATION
of Ahmedabad failed. (True / False)
3) The dispute in the Manesar plant of Maruti Suzuki started because of
wage disparities. (True / False)
4.5 Let Us Sum up
Worker’s participation is essential for development of industries and also for
the productivity of workers. This also makes the daily functioning and deci-
sion making process very smooth at different levels of hierarchy of manage-
ment. Worker’s participation in the production process also makes the rela-
tion between both main stakeholders – employers and employees. This has
been explained with examples in this unit.
1) True.
2) True.
1) False.
2) True.
3) True.
4.7 Glossary
1) Inflation: - A Continuous and high rise in general price level situation.
4.8 Assignment
Explain the levels of worker’s Participation.
Explain the causes of bad industrial relations.
4.9 Activity
Study the reason for disputes and analyse it carefully and find out some more
examples on it.
4.10 Case study
Read the cases from the books mentioned in the Bibliography.
1) (Industrial Revolutions) Trevor Colling, Mike Terry - Industrial Rela-
tions_ Theory and Practice-Wiley-Blackwell (2010)
2) John Purcell (auth.) - Good Industrial Relations_ Theory and Prac-
tice-Palgrave Macmillan UK (1981)
4) Tom Barnes - Making Cars in the New India_ Industry, Precarity and
Informality-Cambridge University Press (2018) (For Cases also)
151
SOCIETY AND BLOCK SUMMARY
INDUSTRY -
INDIAN AND This block will give you the basic idea about the why social responsibilities
GLOBAL TRENDS must be prevailed? There are sometimes contrasts in the goals of society and
WITH CASES the industrialists or the stakeholders in the higher authority of the companies.
This tricky concept of social responsibility must be performed according to
the wishes of the beneficial group of the society. The consumer rights and
consumerism is taking more weight now a days and consumers are being
more serious about the issues related to consumerism.
Industrial sickness is big problem for the economy of any country and must
be curtailed. Trade unions are representing the problems and wishes of the
labors, the behavior, discipline and goals of the trade union defines the wel-
fare of labors.
Worker’s participation and industrial relations have also been discussed in
this block which is now a slow but new fashion in the corporate sector.
152
BLOCK ASSIGNMENT

1. What is the meaning of social responsibility of business?
2. Explain the meaning of Social Audit.
3. What Do you mean by consumer’s Rights?
4. What is the meaning of Consumerism?
5. What is the meaning of Industrial Sickness?
6. What is the role of trade union?
7. Why worker’s participation is needed in business.
8. Why industrial relation between stakeholders must remain calm?

1. Discuss Social Responsibility of Business with exmaples.
2. Explain why consumerism is needed?
3. What are the reasons for industrial sickness? With examples.
4. What is the role of Trade Unions?
153
SOCIETY AND Enrolment No.:
INDUSTRY -
1. How many hours did you need for studying the units ?
INDIAN AND
GLOBAL TRENDS Unit No. 1 2 3 4
WITH CASES
Nos of Hrs
of the block:

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154
DR.BABASAHEB AMBEDKAR
OPEN UNIVERSITY
'Jyotirmay' Parisar,
Sarkhej-Gandhinagar Highway, Chharodi, Ahmedabad-382 481.
Website : www.baou.edu.in

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The need to plan effective instruction is imperative for a successful distance

BLOCK-1 INTRODUCTION TO INDIAN BUSINESS

Fig 2.1 External Factors

 New communication tools for communication like Social media, CRM.

Fig 1.1 ways to reduce scarcity of unemployment

a. meeting basic needs

Fig 1.2 demands pull inflation

Fig 1.3 cost pull inflation

Long Answer Questions

3. Any Other Comments

BLOCK-2 NATURAL ENVIRONMENT RESOURCES

Fig 2.1 Trends in CO2 concentration

Fig 2.2 Climate change

Fig 2.3 TOP CO2 emitter countries

Fig 2.4 per capita CO2 emitter

Fig 2.5 World emissions

Fig 2.6 projection of CO2 emission (2020)

3. Any Other Comments

BLOCK-3 INDIAN ECONOMIC ENVIRONMENT AND

3. Any Other Comments

BLOCK-4 SOCIETY AND INDUSTRY - INDIAN AND

Short Answer Questions

Long Answer Questions

3. Any Other Comments

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